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Greece on edge of political chaos

Protesters dressed as prisoners gather Tuesday outside the Greek Parliament in Athens. Writing on the uniforms reads in part:  “No to global governance.’’

Associated Press

Protesters dressed as prisoners gather Tuesday outside the Greek Parliament in Athens. Writing on the uniforms reads in part: “No to global governance.’’

ATHENS, Greece — Greece's prime minister held firm early today to his surprising decision to call for a referendum on a hard-fought European debt deal, despite anger from abroad, market turmoil across the world and dissent from his own party.

George Papandreou's government still faces a battle for survival with a vote of confidence scheduled for Friday and a grilling from frustrated European leaders expected later in the day ahead of a Group of 20 summit in the French Riviera.

After a seven-hour Cabinet meeting, government spokesman Ilias Mossialos said Papandreou's ministers expressed "total support for the initiatives taken by the prime minister" and said the referendum would be held "as soon as possible."

Papandreou told his ministers that putting the issue to the Greek people was the only way to safeguard the European deal.

"We will not implement any program by force, but only with the consent of the Greek people," he said. "This is our democratic tradition and we demand that it is also respected abroad."

A referendum, he said, "will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro," he said, according to a text of his speech to the meeting issued by his office.

The political struggle in Athens seemed likely to delay — and perhaps scuttle — the debt deal that European leaders reached after marathon negotiations in Brussels last week. Financial markets cratered Tuesday for the second straight day.

The Dow Jones fell 2.48 percent — 297 points. Greece's general price index plunged to close down 6.92 percent, while in Germany the Dax index lost 5 percent — the equivalent of about 600 points on the Dow.

European leaders had made no secret of their displeasure.

"This announcement surprised all of Europe," said a clearly annoyed French President Nicolas Sarkozy.

"Giving the people a say is always legitimate, but the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts," he said.

Some analysts said that Greece was now coming closer to a messy default on its debt and perhaps a departure from the zone of 17 countries that use the euro as their common currency.

Chancellor Angela Merkel of Germany and Sarkozy, apparently caught off guard by Papandreou's call for a referendum and then by the disarray in his party, said they would hold emergency talks on Greece with eurozone leaders today.

They said they also planned to meet with representatives of the Greek government before a meeting of the Group of 20 advanced and emerging economies Thursday, and they defended the terms of the bailout package as "more necessary than ever today."

The big fear is that a decisive turn against the bailout in Greece could undermine European efforts to enforce deep budget cuts in other heavily indebted European countries, especially Italy, which has much more debt than Greece.

Political analysts and several advisers to Papandreou said the prime minister had decided to announce a popular referendum Monday night as his last best hope to shore up his eroded political standing.

But Tuesday, it appeared that his move had backfired. A lawmaker in his governing coalition said she would become independent, and another six leading Socialists wrote a letter calling on Papandreou to resign and schedule early elections for a new government with greater political legitimacy. Together, the developments made it doubtful whether his government would survive a no-confidence vote.

If Papandreou's government falls, it would not be the first one in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portugal, governments fell after accepting bailouts from the EU and the IMF, and last month the Slovakian government fell over a vote on whether to participate in the EU's rescue package.

But Greece's problems are more acute, and its economic slump is much deeper, making the prospect of a government collapse even more worrying. While a new government might try to reopen negotiations with lenders and seek new terms, European leaders have repeatedly dismissed that idea.

Many voters say they are tired of hearing about decisions taken in foreign capitals and political initiatives that do not represent ordinary Greeks.

"The government is no longer in control — others are calling the shots," said Akis Tsirogiannis, a 42-year-old father who recently lost his job at a furniture workshop in Athens.

He said he would vote against the debt deal in a referendum, should the government survive.

"This deal, like all the others, is a life sentence of austerity for Greeks," Tsirogiannis said. "The country is being run from the outside — by bankers and the European Union government. We need to reclaim our country, whatever that entails."

Information from the New York Times and Associated Press was used in this report.

Greece on edge of political chaos 11/02/11 [Last modified: Wednesday, November 2, 2011 1:00am]

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