George Papandreou’s shock announcement that he will put Greece’s bailout to a referendum helped the FTSE open nearly three per cent down this morning. It was interesting listening to Lindsay Williams on 2oceanVibe Radio a little earlier too. He remarked that there are more Porsche Cayennes registered in Greece than taxpayers declaring an income of 50 000 euros or more. Clearly Greeks aren’t fans of paying tax.

Prime Minister Papandreou’s announcement will make this the first referendum in Greece since 1974, when the monarchy was abolished by a landslide vote months after the collapse of a military dictatorship.

It appears that Papandreou even took members of his own parliament by complete surprise – many of whom have laboured countless hours over the past months to broker the deal that saw an offer to write down 50 per cent of Greek bond debt.

They have also been offered a further 130 billion euros, but this has been accompanied by a programme of harsh state spending cuts that have angered many Greeks.

Papandreou said to Greek voters it’s now up to them:

We trust citizens, we believe in their judgment, we believe in their decision. In a few weeks the [EU] agreement will be a new loan contract. We must spell out if we are accepting it or if we are rejecting it.

Harsh words and criticism from around Europe have naturally followed. Christopher Pissarides, a Nobel prize-winning economist:

It is difficult to predict what will happen to Greece if they reject it. It will be bad enough for the European Union and the euro zone in particular, but it will be far worse for Greece.

In the scenario of a ‘No’ vote Greece would declare bankruptcy immediately, they would default immediately. I can’t see them staying within the euro.

To put it simply, Greece is due to receive a further eight billion bailout package in November, which would likely see them through to the proposed referendum vote in January, but if there was to be a “no” vote, the government would no longer have any funds.

Even Greek Finance Minister, Evangelos Venizelos, wasn’t quite sure what to make of it all:

It’s crunch time. Citizens will have to answer the question: are we for Europe, the eurozone and the euro?

Clearly there is dissent amongst the ranks with conservative newspaper, Kathimerini, stating the obvious this morning:

More uncertainty is the last thing that Greece needs right now, the country will certainly paralyse amid endless debates – the government, the state apparatus and institutions won’t work.

Germany said in a statement that the EU was working hard to put the second Greek aid package in place by the end of the year but decided not to comment on the referendum.

[Source: Reuters]