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    World Stocks Plunge on Call for Greek Debt Plan Vote

    Henry Ridgwell

    Greece has sent shockwaves across Europe by calling a referendum on the latest bailout deal. It means there's a big chance that the deal to save the euro currency - agreed to much fanfare in Brussels last week - could be sunk if the Greek people vote against accepting the terms of the bailout. 

    The Acropolis monument looming over Athens is a constant reminder of this country’s ancient heritage.

    Greece is known as the birthplace of democracy.

    And it is the Greek people who will now decide their own economic fate - which will have consequences for the entire eurozone.

    Prime Minister George Papendreou shocked politicians in Athens and beyond, by declaring a referendum on a new EU bailout.

    Parliament will also hold a confidence vote in the government this Friday.

    “This is the highest form of democracy, it is a great moment of patriotism for the citizens to decide, so let us then give the final word to the people and let the citizens decide," said Papendreou.

    In recent months, waves of strikes and protests against austerity measures have crippled Greek cities.

    The latest EU aid package would see further public sector pay and pension cuts and tax rises, designed to reduce Greek debt.

    Opinion polls suggest over half of Greeks disapprove - meaning a ‘no’ vote in the referendum is a real possibility.

    Political journalist Kostas Raptis says Greeks are increasingly turning against the European Union.

    “It’s a very imbalanced relationship economically. And now politically as well. I mean, this sort of imbalance is now translated into the political field, with big eurozone economies dictating to the periphery countries what to do and how.”

    That has rekindled tensions with Germany, which has been driving EU demands for more Greek austerity.

    A national holiday in Greece last week to commemorate the World War II saw protesters waving anti-German flags and banners.

    Previous demonstrations have seen re-enactments of alleged Nazi war crimes.

    “Deep down some World War II animosities still survive, I suspect," said Raptis. "Many Greeks complain about the damages inflicted on our country during the war and about the need for proper German reparations.”

    In public European leaders put on a show of unity. But the referendum is likely to strain relations.
    .
    "If it goes well he of course has the support of the Greek people," said Joerg Rocholl, President of the European School of Management in Berlin. "If not, it could lead to a situation where Greece can no longer remain a member of the euro zone".

    If Greeks vote ‘no’, analysts say there’s no obvious alternative other than for Greece to default or leave the euro.

    After a few days of relative calm - Europe has been plunged back into political and economic uncertainty.

    World stock markets plummeted Tuesday on Greece's call for a referendum on the European debt-relief agreement, while the continent's leaders scrambled about how to react to the surprise development.

    Asian indexes fell sharply, and European stocks plunged. Markets in Paris and Frankfurt slid more than four percent in afternoon trading, with U.S. indexes falling about two percent.  Stocks of banks holding Greek debt were especially hard hit.

    European Union leaders Herman Van Rompuy and Jose Manuel Barroso said they "fully trust" Greece to uphold last week's eurozone debt-relief agreement. It forgives $140 billion in Greek debt, in exchange for the Athens government carrying out widespread austerity measures that have angered many Greeks, as well as boosting the continent's bailout fund for future emergencies.

    But other European leaders and financial analysts said they were shocked when Greek Prime Minister George Papandreou late Monday called for the referendum, which could be held early next year. Several said a Greek vote against the debt-relief agreement would amount to Greece deciding to leaving the bloc of 17 nations that use the euro currency and lead to new turmoil on world financial markets.

    World Bank president Robert Zoellick said it "could be a positive signal" if Greece votes for the debt agreement, but warned that if it is rejected, "it's going to be a mess."

    Ireland's European affairs minister Lucinda Creighton said the referendum was a grenade thrown into the continent's financial turmoil just days after many thought European leaders had acted decisively to calm fears about a Greek default on its obligations. She said that "legitimately there is going to be a lot of annoyance" about the referendum plan.

    French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would meet Wednesday in Cannes, France with leaders from the International Monetary Fund (IMF) and Greece to discuss the latest snag in solving the continent's debt crisis. The Group of 20 leaders of the world's biggest and emerging economies are headed to Cannes for a summit on Thursday and Friday. Economic issues are at the center of the summit's agenda, including the European debt crisis, and fears that it could spawn a new worldwide recession.

    Papandreou has been a staunch supporter of the plan to cut Greece's debt, while binding his country to years of austerity measures. But Papandreou told ruling Socialist party members in Parliament that the "command of the Greek people will bind us." He said if the Greek people do not want it, the plan will not be adopted.

    European and world leaders have praised the adoption of the plan aimed at cutting Greek debt and calming world financial markets worried about a Greek default. The agreement also forces European banks to increase their cash reserves and boosts the bailout fund.

    But the Greek people for months have recoiled at the tax increases and spending cuts the Athens government has been forced to adopt to satisfy its international creditors. They have staged repeated strikes in protest, some of them violent.

    One Greek survey showed 60 percent of those questioned took a negative view of the Brussels agreement, reached in the middle of the night last Thursday.

    The Greek leader's call for a referendum came as new reports in Europe show that the economic fortunes of the 17 eurozone nations are markedly weakening, with higher unemployment and diminished growth prospects for 2012. Until Monday, there had been no suggestion of a referendum on the plan.

    The Paris-based Organization for Economic Cooperation and Development (OECD) predicted that collectively the economies of the bloc of countries that use the euro will virtually stall in 2012, with some of them sliding into a recession. The agency projected growth of only three-tenths of one percent, less than a sixth of the 2 percent growth that was projected just five months ago.

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