Greece on brink of collapse in euro crisis

 

By Robert Winnett, and James Kirkup

12:33AM GMT 02 Nov 2011

The Greek government was on the brink of collapse last night after an “extraordinarily reckless” decision to hold a referendum on euro bail-out plans sparked turmoil in stock markets across the world.

The Dow Jones industrial average lost nearly 300 points on concerns about Greece's acceptance of a proposed solution to that country's debt problems. Photo: EPA

Uncertainty in Greece raised fresh fears that the single currency crisis will spread. European stock markets plunged and the Italian government’s borrowing costs hit record highs as investors warned that efforts to save the euro were “unravelling”.

George Papandreou, the Greek prime minister, faced calls by members of his own government to step down amid fears that Greeks will vote against the bail-out package and the deep cuts in public spending its sponsors are demanding. As Greek politics grew ever more chaotic, there were strong political protests as the government moved to replace military chiefs with officers seen as more supportive of Mr Papandreou.

A No vote could mean Greece is forced to withdraw from the single currency, raising doubts about the euro’s value and wiping trillions off the value of shares and loans across the continent.

The renewed global turmoil overshadowed the release of better than expected economic figures in Britain. The economy grew by 0.5 per cent over the summer, almost double the increase expected by economists. Growth is expected to slow and possibly even slip back into recession because of the eurozone crisis.

At a Cabinet meeting, Mr Cameron told ministers to “roll up their sleeves” and do more to implement plans to boost growth.

 

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Yesterday, at least two members of Mr Papandreou’s Pasok party threatened to defect, which could cost him his parliamentary majority. The collapse of the Papandreou government could mean elections next month, raising fresh doubts about the bail-out deal and delaying any final approval still further.

Opposition parties accused the government of trying to politicise the military leadership amid threats to Mr Papandreou’s position. Greece was run by a military junta between 1967 and 1974. Local reports said the government had been panicked by residents posting portraits of top generals in parts of Athens.

The Greek crisis is likely to dominate tomorrow’s G20 meetings of world leaders after markets panicked. The FTSE 100 index of British shares fell yesterday by more than two per cent, the French stock market was down 5.4 per cent, the German market dropped by five per cent and Italian shares by almost 7 per cent.

David Cameron and other world leaders are understood to have learned of the referendum call from news reports on Monday night. Senior Government sources described the Greek move as “extraordinarily reckless”.

George Osborne, the Chancellor, told MPs that the referendum had added to “instability”, harming the UK. The White House urged European leaders to urgently introduce reforms to cut their debts as President Barack Obama prepared to fly to France this evening for talks with French and German leaders.

Greece on brink of collapse in euro crisis - Telegraph

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