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Greece’s Call for Referendum on Bailout Sends Markets Tumbling

November 1, 2011 at 12:00 AM EST
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JEFFREY BROWN: World markets were shaken today by new fears that the European debt deal might come unglued. Major stock indexes across Europe fell 5 percent or more. And on Wall Street, the Dow Jones industrial average lost 297 points to close below 11,658. The Nasdaq fell 77 points to close under 2,607.

It all started with the stunning news out of Greece. The wave of selling came less than a week after European leaders thought they had finally wrestled down the continent’s debt problems. Investors and governments alike were jolted by a surprise announcement last night that Greece would hold a referendum on a broad new European bailout plan.

Prime Minister George Papandreou called the move — quote — “a supreme act of democracy.”

GEORGE PAPANDREOU, Greek prime minister (through translator): We have a duty to give priority and highlight the role and responsibility of the citizen, showing in practice not only our respect, but also our fundamental thinking that this citizen is the source of our strength and of our very existence. This, dear colleagues, is the referendum.

JEFFREY BROWN: Austerity measures in Greece have already proved deeply unpopular, leading to violent protests and strikes. The new European agreement calls for additional spending cuts, in return for having banks forgive 50 percent of Greece’s debt. That raised fears today that the Greek people would reject the deal outright in any referendum.

VANGELIS AGAPITOS, economist: We’re entering uncharted territory. And we will see the Greek economy going back many decades.

JEFFREY BROWN: The Greek turnabout also touched off warnings across the 17-nation eurozone that the debt deal could unravel, taking down the euro system and potentially triggering a new global recession.

DAVID JONES, IG Index: Once again, it’s just the level of just unknown that is injected back into the markets. This referendum probably isn’t going to happen until next year, and then there’s the risk, well, if they don’t vote for the bailout, what happens next? So just when we all thought it was all done and dusted last week, it all been thrown completely back up in the air again.

JEFFREY BROWN: Against that backdrop, German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks by phone today.

Sarkozy spoke afterward in Paris.

NICOLAS SARKOZY, French president (through translator): France wishes to recall that the plan adopted last Thursday unanimously by the 17 states of the eurozone is the only way to solve the problem of Greek debt. Giving voice to the people is always legitimate, but the solidarity of all countries in the eurozone cannot be exercised without the consent of each effort.

JEFFREY BROWN: The French and German leaders planned a separate meeting tomorrow with other European officials, and with Greek Prime Minister Papandreou, ahead of the G20 summit in Cannes, France.

Meanwhile, the U.S. today pressed the need for quick action.

White House Press Secretary Jay Carney:

JAY CARNEY, White House press secretary: It remains the case that the Europeans have the capacity to deal with this crisis, and they need to implement the very important decisions they made last week to provide a conclusive resolution to it.

JEFFREY BROWN: Back in Athens, the referendum news threatened to bring down the Greek government. Several members of the ruling Socialist Party demanded that Papandreou resign, and a confidence vote was tentatively called for Friday.