The Greek Prime Minister, George Papandreou announced that Greece will hold a general referendum on the 130 billion euros second bailout deal approved by European leaders last week, where leaders attempt to overcome the debt crisis and contain the contagion, but on the other hand Papandreou comes to add more volatility and pessimism to the market.
Papandreou said that he seeks wider political backing for the austerity measures and structural reforms required by international lenders (International Monetary Fund, European Union and the European Central Bank).
Questions are rising by lawmakers over the constitutional legality of the referendum, and over a no vote by Greeks, which could force Papandreou to resign and early elections will take place; however, fears are rising that a no vote could trigger a default, especially when Greece will run out of funds as soon as January.
The announcement had a negative impact on markets and especially on the euro, which extended the losses seen earlier this week against the U.S. dollar, and lost 2% reaching a low of 1.3746.
The Prime Minister told socialist party deputies we trust citizens, we believe in their judgment, we believe in their decision, and added 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.
Finance Minister Evangelos Venizelos told Greek TV that the referendum will probably be held early next year, with market expectations that it will be held in January as Greece will run out of funds by then.