World markets shaken by fresh Greek tremors

Global markets once again went through a tumultuous week after Greek's embattled prime minister George Papandreou stunned everyone by proposing a public vote on the EU bailout for the debt-stricken nation. He also called for a confidence vote in parliament, sending the highly indebted eurozone country into a political turmoil. The shocking development sparked off worries over the fate of Greece in the 17-member exclusive club called the eurozone. In fact, France and Germany were so upset they suspended the next tranche of emergency aid for Greece pending the referendum.



Pressure also intensified on Papandreou from within his own cabinet with Finance Minister Evangelos Venizelos opposing the plebiscite. Members of the Socialist ruling party also dismissed the idea of public vote while the opposition conservative party said that it would back the EU bailout plan. Separately, the largest opposition party in Greece rebuffed Papandreou's overtures to form a national government. The combination of international pressure and domestic political standoff forced Papandreou to call of the referendum, sending global stocks higher again.

Papandreou’s Pasok party controls 152 seats in the 300-member legislature after one lawmaker switched to an independent this week. A negative outcome in Friday's confidence vote could mean fresh elections, which is likely to heighten the uncertainty surrounding Greece.

"There is a real danger of a disorderly default," billionaire investor George Soros was quoted as saying. European Commission President Jose Barroso called for national unity, saying Greece was on the verge of running out of funds. Barroso said that the EU wants to keep Greece in the eurozone and that the country’s exit from the monetary union would risk setting a precedent for investors.

Any rejection of the EU accord reached in Brussels last week would force Greece to exit the currency union. At the same time, fresh elections in Greece would hold up disbursement of Greece’s next aid package, increasing the chance of a default. "One option I consider catastrophic would be to go to elections, Parliament would shut down, we would sink into conflict and polarizations," Papandreou said. "Its doubtful we would reach the end of elections without going bankrupt and having lost time." Greek Finance Minister Venizelos said early elections would endanger the financing package and the sixth tranche of loans.

World leaders gathered in France for this week's G20 summit urged eurozone counterparts to stabilise Greece and fix the two-year-old debt crisis. Leading nations also agreed to boost the IMF war chest to deal with potential emergency. Meanwhile, the ECB cut interest rates by 25 bps amid looming eurozone recession and turmoil in Greece. Italian bond yields softened post the ECB move after having jumped to euro area record. The new ECB president Mario Draghi also left the door open for another rate cut next month. The confidence vote in Greece coupled with the outcome of the G20 summit and US jobs data were among the crucial events investors were keeping on their radar.