Markets in Turmoil After Greek Premier Calls for Referendum the Could Sink Euro Bailout

Daily Mail – November 1, 2011

Financial markets around the world have tumbled in reaction to the shock announcement that Greece is to hold a referendum on whether or not to accept the latest deal to solve the Eurozone debt crisis.

The FTSE was down 2.6 per cent , Germany’s Dax fell by 4 per cent, the Dow Jones fell 2.3 per cent and France’s CAC-40 lost 3.3 percent.

Markets in Asia have also fallen with Japan’s Nikkei closing with a 1.7 per cent drop, Hong Kong’s Hang Seng losing 2.5 per cent and Australia’s S&P/ASX shedding 1.5 per cent.

Greek prime minister George Papandreou took many of his own parliament by surprise by saying that the hard-bargained agreement – that took months for Europe’s leaders to hammer out – will be put to a public ballot.

It will be the first referendum in Greece since 1974, when the monarchy was abolished by a landslide vote months after the collapse of a military dictatorship.

Mr Papandreou horrified other EU leaders yesterday with the announcement that voters will be asked to approve a €100billion deal that would see 50 per cent of the country’s debts written off – but harsh austerity measures imposed for years to come.

A ‘no’ vote would prove catastrophic for the EU and could prompt a disorderly default on the country’s debts and an exit from the euro.

One recent poll showed that 59 per cent of Greeks think the new package is ‘negative’ or ‘probably negative’ for Greece.

As Italy teeters on the brink of financial disaster and experts warned of a second recession and social unrest.

Michael Hewson, analyst at CMC Markets said: ‘What happens if Greece votes “no”, which is possible given how unpopular the bailout plan appears to be amongst Greece’s voters?

‘The resulting fallout could well result in a complete meltdown of the European banking system and throw Europe into turmoil.’

Gary Jenkins of Evolution Securities added: ‘If the Greek population votes against, it will leave the IMF and Greece’s European partners in a very difficult situation and seriously increase the risk of an exit from the currency union. 

‘I mean lets be fair, the EU hardly has a Plan A, so if that gets rejected there really isn’t a Plan B to turn to with regard to Greece.’

‘They may be able to tweak the agreements here and there, but a whole scale new approach to the Greek problem is very unlikely.  It raises the prospect of a disorderly default and an exit from the EU.’

Last night Martin Callanan, Conservative leader in Brussels, said: ‘Are we witnessing the turning point in the eurozone crisis? Surely Greece must now leave the euro. It is clearly incapable of bringing its deficit under control.’

The extraordinary twist came as a leading international think-tank warned that failure to tackle the eurozone debt crisis could trigger another recession as brutal as after the collapse of Lehman Brothers.

With growth figures of around 0.4 per cent for the latest quarter expected for Britain today, the Organisation for Economic Co-operation and

Development predicted that the eurozone will come close to an economic halt next year, with growth of 0.3 per cent.

Such a slowdown in Europe would badly dent Britain’s growth prospects, with Chancellor George Osborne already looking certain to have to massively downgrade growth forecasts next month.

The OECD called for bold action at a G20 summit in France this week to stave off the threat of global disaster.

It predicted a ‘marked slowdown’ in the single currency bloc with ‘patches’ of recession. But it said the outcome could be much worse if leaders fail to shore up the eurozone and stop the crisis spreading from Greece and Portugal to larger countries such as Italy and Spain.

A repeat of the financial crisis of 2007-09 could wipe 5 per cent off the GDPs of major economies by the first half of 2013, said OECD secretary general Angel Gurria.

In Britain hopes of an economic recovery were boosted slightly as official figures revealed that the pace of growth accelerated faster than expected in the third quarter of 2011.

GDP increased by 0.5 per cent in the three months to the end of September, representing an improvement on the 0.1 per cent rise in the previous quarter, the Office for National Statistics revealed.

Economists had predicted a figure of between 0.3 per cent and 0.4 per cent as joblessness hit record levels.

Mr Gurría urged Britain to hold its nerve and stick to austerity measures set out in the coalition agreement.

‘In many cases, when you have a very large deficit, and that was certainly the case of the UK, you have to give signals that you are no longer choosing or wavering.

‘Very, very strong signals in the direction that you want to go in that will give confidence and power to the country in the markets. That’s exactly what happened,’ he said.

David Cameron yesterday warned against talking down the British economy and pledged an ‘all-out mission’ to promote growth.

‘Above all, at home and abroad, we must counsel against the pessimism and fear that can become self-fulfilling prophecies in global markets,’ he said.

But a second global watchdog said the world economy is on the verge of a major jobs crisis as the recovery in the West runs out of steam.

The International Labour Organisation, part of the United Nations, said it would take at least five years for employment in advanced economies to return to pre-recession levels.

‘The next few months will be crucial for avoiding a dramatic downturn in employment and further aggravation of social unrest,’ said ILO director Raymond Torres.

Stock markets around the world tumbled yesterday as investors lost faith in the credibility of the eurozone deal. The FTSE 100 index dived 158.02 points to 5544.22 – wiping £41billion off the value of Britain’s leading companies.

Italian borrowing costs rose above six per cent as the country’s towering debts – and the lack of political will to deal with them – alarmed investors about the stability of the EU’s third largest economy. 

‘Time to forget Greece, Italy is the most scary guest at this eurozone Halloween party,’ said Louise Cooper, markets analyst at BGC Partners.

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