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Greece Calls for Referendum on Bailout, Markets Fall Sharply

Greek Prime Minister George Papandreou speaks during a press conference held at the end of a eurozone summit at EU headquarters in Brussels on Oct. 27. Photo by Georges Gobet/AFP/Getty Images.

Greece’s leaders have called for a referendum on the massive bailout package that emerged from an emergency summit in Brussels last week, sending markets sharply downward Tuesday as fears grow that the deal may not be implemented.

Prime Minister George Papandreou shocked Europe with his announcement that the Greek government would hold a referendum on the package, a vote that some doubt he can win. The New York Times sums up his gamble:

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders — the European Union, the European Central Bank and the International Monetary Fund — which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation’s painful economic choices from Mr. Papandreou’s Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political position and avoid the instability of early elections.

Papandreou defended the referendum, calling it a “a supreme act of democracy and of patriotism for the people to make their own decision.”

French President Nicolas Sarkozy and German Chancellor Angela Merkel, a key negotiator in the deal, were expected to discuss options Tuesday.

The vote itself would likely take place in January, relegating markets to several more months of uncertainty.

Ahead of the U.S. stock market opening Tuesday, Britain’s FTSE 100 was down 3.1 percent, Germany’s DAX by 5.4 percent and France’s CAC by 4.7 percent.

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