Greek referendum plan plunge financial markets into frenzy

The planning of Greek plebiscite on the bailout package reached at eurozone summit and the associated austerity requirements has plunged the financial markets into a frenzy, as the German DAX index slumped by five percent on Tuesday. Traders were apparently shocked by Greek Prime Minister Giorgos Papandreou\'s call for a referendum, as the Stock Exchange in Athens saw its index shedding by more than eight percent into the red. The announcement of the referendum has obviously stirred up great turmoil in the financial markets, as the specific consequences of the referendum and a possible rejection of the requirements for austerity on the Greece loom and put the positive effect of the recent summit decisions into question. Both European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso reacted cautiously to the planned referendum, saying that they were \"completely confident that Greece will fulfill its commitments it has agreed upon with the eurozone and the international community\". Luxembourg Prime Minister Jean-Claude Juncker stressed that such a decision for a referendum did not get the consent from most of the European leaders, and warned that if the Greeks vote against the new rescue package, the procedure for the bust of the country should not be excluded. After a special meeting with the key ministers of his government, French President Nicolas Sarkozy said that the agreed European rescue plan is the \"only way\" to solve the debt crisis in Greece, and the leading European institutions must now make it clear, under what kind of circumstance could the bailout plan be further carried out. During an earlier telephone talks, Sarkozy and Chancellor Angela Merkel exchanged ideas about the possible consequences of the planned referendum, and said in joint statement that both countries were determined \"to ensure full and immediate implementation of summit decisions that are more necessary today than ever.\" Germany and France were convinced that the agreement could have Greece returning to normal track of sustained growth, and that subject should be put onto open discussion with the EU, the European Central Bank, the International Monetary Fund and representatives of Greece in Cannes. Merkel will travel to the French town a day earlier than previously planned for the G20 summit, which will begin on Thursday. Finnish Prime Minister Jyrki Katainen said the decision of referendum by Papandreou was negative for the stability of Europe. Similar sentiments were expressed by the Danish Prime Minister Helle Thorning-Schmidt, who said\"that does not help to calm the situation, given the debt crisis\". Swedish Prime Minister Fredrik Reinfeldt also criticized that \"the referendum makes the uncertainties even greater because it is not clear when it will occur and what are the alternatives.\" The spokesman for the Spanish government sees the announcement from Athens \"not good news for Europe, and a solution to the Greek debt crisis would be delayed through a referendum, it\'s unfortunate for Europe\". The U.S. government thinks that the Greek plan of referendum piles pressures on the EU, as the package of measures against the debt crisis ought to be implemented as soon as possible. German FDP parliamentary leader Rainer Bruederle urged the eurozone to adjust to a possible state bankruptcy of Greece. \"If Greece says no to tackle its structural weaknesses, and refuses to address to the its competitive problem on the reform process, then I think it will come to a national bankruptcy,\" as he was quoted by saying on a radio interview. German CSU, the ruling CDU\'s sister party in Bavaria, also warned against the consequences of Athens \'no\' in the referendum. \"Greece must know: If it is not willing or able to implement tough austerity measures, it must expect no help and leave the euro zone,\" said CSU General Secretary Alexander Dobrindt. German SPD leader Frank-Walter Steinmeier described the planned referendum as \"risky but courageous way, that Papandreou and his reforms have ensured that his country get back on their feet\". Meanwhile, Green Party head Jurgen Trittin expressed the similar points of view that this vote has Greece and Europe been in a period of great risks, saying that Papandreou also prove courage while trying to convince the public of the need to reform Greece. The leader of the Left Party, Gregor Gysi, welcomed the planned referendum. \"Papandreou had obviously realized that he had been ruled \"against the population,\" said Gysi. The German private banks turned sharply against the referendum plans, as Papandreou\'s announcement \"has led to considerable uncertainty in the markets,\" said the chief executive of the Federal Association of German Banks, Michael Kemmer. \"Important detailed planning in the aftermath of the summit will now be delayed, at worst, put on hold,\" he said. The rating agency Fitch views the planned referendum a threat to financial stability in the euro zone. The development underscores the need for a credible defensive wall must be built so that Greece could not infect and destabilize the area, said Fitch.