The stunt took the other EU leaders totally by surprise and casts doubt on the latest Greece bail-out deal, painstakingly brokered over 11 hours a fortnight ago. The EU Summit in Brussels decided on a 50% haircut on the nation's loans alongside a €100bn cash injection to help dig Greece out of debt. Until the Greek vote is cast, this deal hangs in the balance.
To complicate matters further, no date has been set on the vote yet, although the Greek press says the referendum could come as late as January. Should the Greek public reach a 'no' vote, Greece will certainly default and be ousted from Europe to the financial detriment of the euro and the other 17 Eurozone nations.
And let's make no bones about it, a 'no' is very likely. A survey conducted in Greece last weekend found that nearly 60% opposed the deal reached in Brussels last week, or more precisely, objected to austerity measures that will result in a significant drop in quality of life across the country. So if the referendum is phrased as a straight 'in or out of the Euro' question (which of course it may not be) then things could very quickly get even more interesting than they already are.
Papandreou's announcement has already damaged confidence across the markets. The FTSE 100 traded 2.1% lower after the referendum broadcast was aired, the Dax in Frankfurt also fell 3.3% while the Cac-40 in Paris dropped 3.1%.
Greek finance minister Evangelos Venizelos has defended his PM's move, saying: 'The country is living a drama. Citizens are confused ... that is why the referendum is necessary.'
But why did Papandreou do it? In the wake of riots across Athens as protesters rebel against public sector cuts, perhaps the PM want to prove that the public still has a say in the handling of Greek debt - he did begin his statement feting democracy, after all. Or maybe it's a shock tactic to calm civil unrest. Or perhaps he's just shrugging off responsibility and slipping gradually into a cushy retirement?
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