Greek government in chaos with debt deal in doubt

By Elena Becatoros

Associated Press

Published: Tuesday, Nov. 1 2011 12:00 a.m. MDT

Greek Prime Minister George Papandreou addresses Socialist members of parliament in Athens, Monday, Oct. 31, 2011. Papandreou says his country will hold a referendum on a new European debt deal reached last week. Papandreou gave no date on other details of a proposed referendum on the deal that aims to seek 50 percent losses for private holders of Greek bonds and provide the troubled eurozone member with euro 100 billion ($140 billion) in additional rescue loans.

Thanassis Stavrakis, Associated Press

Enlarge photo»

ATHENS, Greece — The Greek government teetered and stock markets around the world plummeted Tuesday after a hard-won European plan to save the Greek economy was suddenly thrown into doubt by the prospect of a public vote.

One day after Prime Minister George Papandreou stunned Europe by calling for a referendum, the ripples reached from Athens, where some of his own lawmakers rebelled against him, to Wall Street, where the Dow Jones industrial average plunged almost 300 points.

Papandreou convened his ministers Tuesday night and insisted his decision to call for a referendum on Greece's place in Europe — which would be the first since Greeks voted to abolish the monarchy in 1974 — was right.

"We will not implement any program by force, but only with the consent of the Greek people," Papandreou told his ministers, according to a text of his speech released by his office. "This is our democratic tradition and we demand that it is also respected abroad. And I believe it will be respected."

Papandreou said the Greek people were being called on to determine whether or not they wanted the new deal and to remain in the euro currency used by 17 European Union nations.

"The dilemma is not 'this government or another one', the dilemma is 'yes or no to the agreement', 'yes or no to Europe', 'yes or no to the euro," he said.

The prime minister acknowledged there would be adverse market reaction, but said turmoil would be temporary.

The only other option, he said, would have been to hold early elections, which would have been "an avoidance of our responsibilities" which could have "dragged us into a state of being in danger of bankruptcy."

Papandreou has also called a vote of confidence in his government, to be held midnight Friday.

"The government is not falling," insisted Angelos Tolkas, a deputy government spokesman.

Under a recently amended law, a referendum can be called by presidential decree on issues of grave national concern, if it is proposed by the cabinet and approved by absolute majority in the 300-member parliament.

With several of his lawmakers rebelling, it was unclear whether Papandreou would have enough support to push the idea through. Although he had not set a specific question or date for the referendum, ministers indicated it would likely be held in January.

Papandreou's decision could upend a deal that was the product of months of work by European leaders who were trying, sometimes opposed by their own people, to agree the details of a second bailout for Greece and shore up their own economies in the name of saving the euro, the common currency.

The deal would require banks that hold Greek government bonds to accept 50 percent losses and provide Greece with about $140 billion in rescue loans from European nations and the International Monetary Fund.

But Greeks have been outraged by repeated rounds of tax increases and salary and pension cuts imposed as the government struggles to meet the conditions of a first, $153 billion bailout the country has been relying on since May 2010. With Greece facing a fourth year of recession next year, unions have held frequent strikes, and protests have often degenerated into riots.

A Greek rejection of the second rescue package could cause bank failures in Europe and perhaps a new recession in Europe, the market for 20 percent of American exports. It could also cause Greece to leave the alliance of 17 nations that use the euro.

European leaders made no secret of their displeasure.

"This announcement surprised all of Europe," said a clearly annoyed French President Nicolas Sarkozy, who has been scrambling to save face for Europe before he hosts leaders of the Group of 20 major world economies later this week.

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