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Greek referendum call stuns EU. Could it topple Papandreou?

European politicians reacted angrily and financial markets slid after Greek Prime Minister Papandreou stunned Europe with the announcement of a Greek referendum on latest aid package.

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"This sounds to me like someone is trying to wriggle out of what was agreed – a strange thing to do,” said Mr. Brüderle, who was Germany's economy minister for the past two years.

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'Financial suicide'?

European markets fell after the announcement. The FTSE 100 in London traded 2.5 percent lower, the Dax in Frankfurt fell 5 percent and the Cac-40 in Paris dropped 3.3 percent. Shares of banks like Deutsche Bank and Société Générale suffered, losing up to 10 percent of their value.

Analysts criticized Mr. Papandreou’s decision.

“The entire rescue package for Greece is up in the air again,” said Benjamin Schroeder of Commerzbank.

Folker Hellmeyer, chief analyst with the Bremer Landesbank, called the move “financial suicide.”

Dignified exit?

In Greece, Papandreou’s announcement is seen as an attempt to secure political backing for highly unpopular austerity measures – or a dignified exit from office. A poll published over the weekend in the Athens daily To Vima showed that 59 percent of Greeks believe the EU bailout package would have negative consequences for them. Fifty-four percent said they would welcome a referendum on the bailout. But at the same time 73 percent were in favor of Greece remaining a member of the eurozone.

That could prove difficult, should a referendum vote against the bailout package, according to Jörg Rocholl, president of the Berlin-based European School of Management and Technology.

“A Greek No vote would cause EU countries to rethink their commitments to the rescue package. And that in turn would mean that Greece can’t remain in the euro,” Mr. Rocholl says.

But it seems that the Greek PM has run out of options.

“Papandreou lacks the support of the opposition and of the electorate,” says Professor Korliras in Athens. “And he can’t even fully control his majority in parliament. So he is in a cul-de-sac.”

Given the current political climate, the most likely outcome of early elections, demanded by the political opposition, would be a coalition government – and that would be good news for Greece, Korliras believes.

“They would probably try to re-negotiate some parts of the bailout package, but in general they would go ahead with it," he says. "So there’s still hope for Greece within the eurozone.”

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