Papandreou Sends Markets into Nose Dive on Referendum Call

European markets tumbled on Tuesday following Greek Prime Minister George Papandreou’s announced a referendum would be held on the question of further austerity measures required to receive further emergency funding from the European Union. Given the level of resistance to spending cuts already exhibited by the public, there is no guarantee that a referendum would result in a yes vote.

A rejection would result in a new election and almost assuredly mean a disorderly default. This new risk has seen investors abandoning European stocks with the malaise expected to spread to North America when stock markets in Canada and the U.S. open for the day.

“Papandreou could lose the referendum, which means that new elections would have to be called,” Thomas Costerg, European economist at Standard Chartered Bank in London, said in an e-mail. “Heightened Greek uncertainty could propagate to other fragile euro-area countries, in particular Italy.”

Source: Bloomberg

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