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Eurozone debt crisis: Markets dive on Greek referendum Eurozone debt crisis: Markets dive on Greek referendum
(40 minutes later)
  
European markets have fallen following Monday's announcement of a Greek referendum on the latest aid package to solve its debt crisis.European markets have fallen following Monday's announcement of a Greek referendum on the latest aid package to solve its debt crisis.
Eurozone leaders agreed a 50% debt write-off for Greece last week as well as strengthening Europe's bailout fund.Eurozone leaders agreed a 50% debt write-off for Greece last week as well as strengthening Europe's bailout fund.
But the announcement of a referendum has cast doubt on whether the deal will be able to go ahead.But the announcement of a referendum has cast doubt on whether the deal will be able to go ahead.
The FTSE 100 in London traded down 2.9% while the Dax in Frankfurt fell 4.4% and the Cac40 in Paris dropped 4.3%. The FTSE 100 in London was down 2.6% while the Dax in Frankfurt fell 4.2% and the Cac 40 in Paris dropped 3.8%.
Earlier, the Nikkei in Tokyo closed down 1.7% and the Hang Seng in Hong Kong closed down 2.5%.Earlier, the Nikkei in Tokyo closed down 1.7% and the Hang Seng in Hong Kong closed down 2.5%.
German Chancellor Angela Merkel is due to discuss the Greek announcement with French President Nicolas Sarkozy on the telephone.German Chancellor Angela Merkel is due to discuss the Greek announcement with French President Nicolas Sarkozy on the telephone.
Europe's main share markets had all fallen before the announcement as well, with the FTSE, Dax and Cac-40 all dropping about 3% on Monday. Confidence vote
Greek opposition parties have accused Prime Minister George Papandreou of acting dangerously, and called for an early election.
"Elections are a national necessity," conservative leader Antonis Samaras said, adding that Mr Papandreou was putting Greece's EU membership at risk.
A confidence vote is due to take place in the Greek parliament on Friday.
Mr Papandreou has 153 deputies in the 300-seat parliament, but has faced increasing dissent within his own party as well as through demonstrations across the country, some of them violent.
Opinion polls in Greece suggest that most people do not support the deal.Opinion polls in Greece suggest that most people do not support the deal.
Prime Minister George Papandreou told a meeting of his governing Socialist party that Greek people would have the final say on the package, which is designed to reduce Greek debt by about 100bn euros through a series of measures including public sector pay cuts, tax rises and falling pensions. Mr Papandreou told a meeting of his governing Socialist party on Monday that Greek people would have the final say on the austerity package, which is designed to reduce Greek debt by about 100bn euros through a series of measures including public sector pay cuts, tax rises and falling pensions.
"By definition, resistance to the bailout package... would imply a preference to find another route and the only other viable route would be an exit" from the euro, said Padhraic Garvey, an analyst at ING. The austerity measures are a condition of the bailout packages from the European Union and International Monetary Fund.
Some analysts are saying that the referendum would in effect be on whether Greece should abandon the euro.
Nobel Prize winning economist Christopher Pissarides said, "If there is a 'no' vote, Greece would immediately declare bankruptcy. I do not see how Greece could remain in the euro."
There is also concern that the referendum would be unlikely to take place before January, which would create months of uncertainty for the markets.There is also concern that the referendum would be unlikely to take place before January, which would create months of uncertainty for the markets.
"We cannot wait until 15 January," said Konstantinos Michalos, president of the Athens Chamber of Commerce."We cannot wait until 15 January," said Konstantinos Michalos, president of the Athens Chamber of Commerce.
"Personally, I do not think we will ever get there.""Personally, I do not think we will ever get there."
A senior member of Chancellor Angela Merkel's coalition in Germany said he had been irritated by the referendum announcement.A senior member of Chancellor Angela Merkel's coalition in Germany said he had been irritated by the referendum announcement.
"The prime minister had [agreed] to a rescue package that benefited his country," Rainer Bruederle told Deutschlandfunk radio."The prime minister had [agreed] to a rescue package that benefited his country," Rainer Bruederle told Deutschlandfunk radio.
"Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece.""Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece."
He added that the only thing to do now would be to prepare for the Greek state to be insolvent and try to limit the damage to Europe's banking system.He added that the only thing to do now would be to prepare for the Greek state to be insolvent and try to limit the damage to Europe's banking system.
On the markets, shares in banks saw the biggest falls, with Credit Agricole down 8.6%, Societe Generale falling 10.4%, BNP Paribas down 8.6% and Barclays 7.7% lower. On the markets, shares in banks saw the biggest falls, with Credit Agricole down 10.5%, Societe Generale falling 13.9%, BNP Paribas down 9.2% and Barclays 8.8% lower.
On the currency markets, the euro fell 1% against the US dollar and 0.4% against the pound. On the currency markets, the euro fell 1% against the US dollar.
The yield on German bonds fell to near record lows, while the difference between the yield of German bonds and those of Italian and Belgian bonds rose to the highest since the introduction of the euro.The yield on German bonds fell to near record lows, while the difference between the yield of German bonds and those of Italian and Belgian bonds rose to the highest since the introduction of the euro.
Greek opposition parties have called for early elections. The conservative opposition accused Mr Papandreou of acting dangerously. Europe's main share markets had all fallen before the referendum announcement as well, with the FTSE, Dax and Cac 40 all dropping by about 3% on Monday.
A confidence vote is due to take place in the Greek parliament on Friday.
Mr Papandreou has 153 deputies in the 300-seat parliament, but has faced increasing dissent within his own party as well as through demonstrations across the country, some of them violent.