European markets plunge on proposed Greek bailout vote

CANNES, France — The future of Greece’s government – and with it, the extensive bailout plans reached just days ago -- appeared to be in increasing doubt Tuesday, as Greek Prime Minister George Papandreou shocked world leaders by calling for a referendum on Greek participation in the rescue package.

Markets plunged around the world on the news — the Dow had dropped nearly 2.5 percent at closing bell — and it seemed uncertain whether Papandreou would survive a confidence vote scheduled for Friday. One member of Papandreou’s slim Socialist parliamentary majority quit the party on Tuesday, and still more called for him to resign. Another said she wanted a unity government to steer the country through the economically treacherous months to come. Since Papandreou now has just a two-vote majority in the 300-seat legislature, the outcome of the vote of confidence seemed deeply in doubt.

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Luxembourg Prime Minister Jean-Claude Juncker told a Luxembourg radio station on Tuesday that the referendum “is something that brings a great nervousness, that adds great insecurity to already great insecurity, and therefore we need to see calmly how we will deal with this.” He said that that Greece could wind up bankrupt if it votes down the bailout plans.

On Tuesday afternoon, French President Nicolas Sarkozy called an emergency meeting of his senior advisers to discuss the situation. After speaking with German Chancellor Angela Merkel by phone, Sarkozy said in a statement that “France and Germany, with their European partners, are determined to ensure without delay the full implementation of decisions adopted by the summit, which are necessary today more than ever.”

Sarkozy, Papandreou and Merkel, along with other European officials, planned to confer on Wednesday in Cannes ahead of a G20 summit whose agenda has now been thrown into disarray.

Greek Finance Minister Evangelos Venizelos was hospitalized early Tuesday with stomach pains after Papandreou announced the plans late Monday night. From the hospital, he spoke by phone to top European officials.

By the time markets closed Tuesday in Europe, France’s CAC and the German DAX indexes had plummeted around 5 percent. London’s FTSE 100 was down about 2 percent. The market plunge wiped out the gains that followed last week’s approval by European officials of the crisis management plan

U.S. markets remained in decline throughout the day, with the Nasdaq closing down at 2.9 percent and the S&P 500 dropping 2.8 percent.

Details of the new rescue plan are supposed to be negotiated with the IMF and European officials in coming weeks. After weathering intense criticism in Greece over the current bailout plan’s inability to revive the economy, Papandreou said it was up to the people of Greece — frustrated by severe budget cuts, tax increases and public-sector job losses — to decide if they want to continue.

It is “time for the citizens to reply responsibly,” Papandreou 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.”