After a marathon seven hour emergency meeting Greece’s cabinet has decided to back Prime Minister George Papandreou’s proposal for a referendum on a crucial European Union aid deal.
The premier fought off a barrage of criticism, with some calling him to quit for jeopardising Greek euro membership. But in the end they agreed to ask the Greek people, but probably not before January.
Papandreou is gambling on the referendum giving him a clear mandate to proceed with austerity measures to cope with the country’s debts – but it is a risk.
Market Trader Oliver Roth warned: “The worst case scenario is right now, that if Greece is really rejecting the rescue package, that might blow up the whole euro system.”
Financial markets worldwide nosedived on the surprise referendum announcement. They had been hoping that Europe was at last setting its house in order.
Investor confidence is potentially facing more of a battering, with Papandreou facing a confidence vote in parliament on Friday.