Fresh uncertainty over Greece’s decision to hold a referendum on the euro bailout plan has seen markets slump.
Main market indices in Frankfurt and Paris were both down by over five percent – and in Milan by more than six percent – at midday. Even in the non-eurozone UK, the FTSE had shed more than three percent.
French and German banks and other lenders exposed to Greek debt as well as banks in other weak euro zone countries have slid by as much as six percent, diminishing hopes of an end of year rally and raising the risk of Greece making a disorderly default.
It has also emerged that Greek Prime Minister George Papandreou had not informed his own finance minister before announcing his decision to hold the referendum on the bailout. According to a Greek government source who asked to keep his anonymity, finance minister Evangelos Venizelos, who has led the bailout talks with his European counterparts, was aware only of a vote of confidence in Papandreou.
Furthermore, Eurogroup president Jean-Claude Juncker has said Papandreou also neglected to tell other European leaders of the decision to go to a public vote.
On Tuesday morning, six members of Papandreou’s own PASOK party called on the prime minister to resign, further increasing the uncertainty in the markets. Another PASOK member of parliament defected, cutting Papandreou’s majority to 152 out of 300 MPs.
“The markets are frustrated because whenever there is a glimmer of hope, the political lawmakers eliminate everything. That’s shocking for the markets and we have no time to wait until spring time 2012 when the Greek government is able to hold a referendum on whether it will stay in the euro zone or not. That’s why we have a high level or uncertainty,” said Robert Halver, a trader at Baader bank.
Papandreou’s decision to hold a referendum has also raised tensions in the French seaside resort of Cannes, where G20 leaders will meet on Thursday.
A large anti-capitalist demonstration and counter summit is expected to take place in Nice later today with a portion of Cannes’ famed Boulevard de la Croisette closed off. French police say they are taking the march very seriously as even a few troublemakers could dramatically disrupt the event.