European leaders, who had produced a rescue plan last week after a series of marathon meetings, hastily scheduled a meeting for Wednesday with Papandreou to contain the damage — to their plan, their credibility and global markets.
Rocked by the sudden uncertainty over Europe’s fate, U.S. markets tumbled, with the Standard & Poor’s 500-stock index falling 2.8 percent. The losses in Europe were even steeper. Germany’s DAX index was down 5 percent, and stocks in France and Italy fared even worse.
The slide continued across Asia for a third day Wednesday when Japan’s Nikkei 225 index fell 1.8 percent and Hong Kong’s Hang Seng dropped 0.9 percent.
European leaders produced a rescue plan last week aimed at bailing out Greece, heading off possible defaults by other cash-strapped governments such as those of Italy and Spain, and shoring up shaky European banks that had bought risky government bonds. The deal had sent global markets soaring on hopes that it would resolve the chief threat to the world’s economic recovery.
But the euphoria vanished with Papandreou’s announcement that he would ask his populace to vote on the plan, which has been widely criticized by Greeks. An earlier Greek bailout, which required the government to enact sharp cuts in spending and other austerity measures, prompted violent protests in the streets of Athens.
Papandreou’s cabinet, after a marathon meeting Tuesday night, concluded with his ministers’ unanimous support for the referendum. It will be held “as soon as possible,” government spokesman Ilias Mossialos said Wednesday.
French President Nicolas Sarkozy, who will host the Group of 20 world economic powers later this week, said on French television that the session scheduled for Wednesday in Cannes with Papandreou is intended to keep the new program on track. Sarkozy called the rescue plan “the only way to solve Greece’s debt problem.”
World Bank President Robert Zoellick said a referendum “is a roll of the dice” when world markets are already on edge.
Greece defends vote plan
But Papandreou said the referendum is an important democratic step in a country racked by economic problems and torn by social strains. Loans from other European countries and the International Monetary Fund have kept the Greek government afloat for a year and a half. But the lenders have demanded that Greece take a series of steps to put its finances in order, and it has become increasingly difficult for Papandreou to win approval from his cabinet and Parliament for the painful measures.
Before accepting any plan, the embattled prime minister said he wants to shift the choice to the people. It is “time for the citizens to reply responsibly,” he said. “Do they want us to implement it or reject it? If the people do not want it, then it shall not be implemented. If yes, we shall proceed.”