Europe crisis plans at risk after Greek vote call

Months of uncertainty over the vote will threaten the stability of larger economies like Italy,which saw its borrowing rates rise sharply. It will also hinder European leaders efforts to get countries like China to contribute to their expanded bailout fund and to convince banks to accept bigger losses on their holdings of Greek debt. While it may be the democratic thing to do 8230; what happen if Greece votes no,which is possible given how unpopular the bailout plan appears to be amongst Greeces voters? said Michael Hewson,analyst at CMC Markets. The resulting fallout could well result in a complete meltdown of the European banking system and throw Europe into turmoil.

Greek Prime Minister George Papandreou stunned investors,as well as his own citizens and partners in the euro zone,by announcing late Monday that a plebiscite will be held in what he called a supreme act of democracy and of patriotism for the people to make their own decision. A confidence vote in the Socialist government will also take place at the end of this week.

Given that Greece is heading for its fourth year of recession next year,investors believe there is a real chance Papandreou may lose the vote. A victory in the referendum,on the other,could give the Greek government a solid mandate to pursue its austerity measures required in exchange for the bailout loans.

A recent opinion poll suggested that 60 per cent of Greeks were against the austerity measures that have been required by international creditors from the euro zone and the International Monetary Fund in return for crucial bailout loans. However,other polls show broad support for remaining in the euro zone.

Opposition parties rounded on Papandreou,accusing him of blackmail and vowing to block the vote at all costs,and foreign European officials expressed dismay.