Referendum on EU rescue deal sends shockwaves across world’s markets

Greece’s shock plan to hold a referendum on the eurozone rescue package triggered a slump on world markets yesterday.

The FTSE 100 Index fell more than 2 per cent, or 122.7 points, to 5421.6 after Greek prime minister George Papandreou’s unexpected move cast fresh doubts on last week’s much-heralded proposals to protect Europe from economic collapse.

Barclays was down 9 per cent, while taxpayer-backed banks Lloyds and Royal Bank of Scotland were down 6 per cent and 8 per cent respectively amid fears that Greece could default on its debts if it does not accept the plan.

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David Jones, chief market strategist at IG Index, said: “The decision by Greece to hold a referendum on the bailout is a shock to investors who thought that we were finally nearing the end. It raises the prospect of the crisis dragging on further still, continuing the uncertainty for stock markets.”

There were even bigger losses on European markets, where the Cac 40 in Paris and the Dax in Frankfurt were down 5 per cent, while the Italian leading shares index was down nearly 7 per cent.

The Dow Jones Industrial Average in the US was down more than 2 per cent at the time the market closed.

The dismal opening in Europe followed a weak session in Asia where fears over the viability of the three-pronged EU rescue deal and weak Chinese manufacturing data troubled investors.

Last week, EU leaders agreed a 50 per cent “haircut” with banks on Greek debt and to boost the eurozone bailout fund to €1 trillion euro (£870 billion), which follows an earlier decision to shore up banks’ finances.

But Mr Papandreou threw a spanner in the works last night when he announced his debt-strapped country will hold a vote on whether to accept the deal next January.

Jordan Lambert, trader at Spreadex, said: “Considering how persistently Greece and Germany have pushed for this long-awaited deal, it seems quite unnecessary to risk undoing all the progress to date.”

PETER CRIPPS