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Markets drop on Greek referendum 'grenade'

Investors react to news that Greece intends to hold a referendum on its latest bailout agreement, despite the unpopularity of the deal.

Updated 18.22

GLOBAL FINANCIAL markets have fallen following the Greek prime minister’s unexpected announcement last night that the country would hold a referendum on its second bailout deal.

Minister of State for European Affairs Lucinda Creighton told TheJournal.ie that the move ‘makes life much more difficult for Ireland – we depend on the eurozone being stable, we depend on the issue of Greek debt being managed, and this has created chaos on the European markets today’.

Creighton said that the announcement ‘called into question’ the deal which was agreed just days ago on the Greek debt crisis.

Earlier, Creighton told Reuters that she expected a lot of annoyance among other EU politicians in reaction to the Greek decision, and compared the announcement to a “grenade” thrown just days after the deal.

Nicolas Sarkozy and Angela Merkel are to discuss the Greek news today. Swedish Foreign Minister Carl Bildt tweeted earlier: “I truly fail to understand what Greece intends to have a referendum about. Are there any real options?”

Meanwhile, Greek opposition politicians likened the referendum to blackmail against Greek citizens.

Stocks down

Stocks opened sharply lower in the US this morning on foot of the news from Greece, while Asian markets dropped one to two per cent overnight.

The FTSE 100 fell 2.9 per cent earlier today, while Germany’s DAX dropped 4.9 per cent and the French CAC-40 was down 4.7 per cent. Greek and Italian shares are down over 6 per cent, while the ISEX has fallen by 3.4 per cent.

Last week’s EU summit agreement on the second bailout deal for Greece had initially bolstered the markets, but that temporary shine has seriously worn off, with investors showing today that they do not have confidence that Greek Prime Minister Papandreou can pull off a successful referendum on the hugely unpopular Greek bailout.

Papandreou’s party has just a two-seat majority in the parliament after one member resigned from the party today. The government faces a confidence motion at the end of this week, and it is unclear if it will pass.

- Additional reporting by the AP and Christine Bohan

Read: Greece to hold referendum on new debt deal >

Read: Merkel apology to Berlusconi denied, as Sarkozy criticises Greek euro entry >

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