Greek prime minister George Papandreou has called for a referendum in January on his country's bailout, surprising and infuriating European leaders who are en route to a G-20 summit in France. In an emergency meeting that ended at nearly 3 a.m. Wednesday, the cabinet reportedly gave unanimous support for Papandreou's decision. Markets were rattled by the announcement worldwide; Standard & Poor's 500-stock index fell 2.8 percent.
"The announcement has surprised the whole of Europe," French president Nicolas Sarkozy said. "Giving the people a way to express themselves is always legitimate, but the solidarity of all the euro-zone countries cannot be exercised unless everyone agrees to make the necessary efforts." Sarkozy and German chancellor Angela Markel, whose countries are burdened by a significant portion of the Greek debt, saw the summit as an opportunity to endorse the debt deal reached by European leaders in Brussels last week.
But Papandreou's audible jeopardizes the bailout deal and puts him at risk of getting ousted from his post. “Do they want us to implement [the bailout plan] or reject it?" Papandreou said. If they proceed with the plan, the Greek people would have to accept the austerity plan that would slash jobs and social services and increase taxes. If they reject it, all bets are off, and a Greek default is possible.
Meanwhile, Sarkozy and other European officials are not interested in waiting until January for the referendum. "We want to convey to the Greeks that there is no alternative to the existing package of measures that we agreed in Brussels," a European official familiar with the situation said. "We need quick clarification of the Greek government's mandate; we cannot wait until January."