By: Dr. Mike Campbell

Just when you thought that it was safe to go back into the waters of the markets with the EU deal in place to support the banking sector and prop up the finances of any EU state needing a bailout, turmoil has returned. In a totally unforeseen move, the Greek government announced that it would take the EU plan to a referendum of the Greek people.

The deal to reduce the Greek debt by €100 billion naturally comes with strings attached. The banks would agree to a 50% write-down on Greek debt in return for support from the EU in the event of a further crisis. For her part, Greece was to accept further austerity measures. The austerity measures already in place have been met with anger in Greece where protestors have come onto the streets, strikes have been called, property has been damaged and, in the most recent protests, a life was lost.

The Greek PM, George Papandreou, has announced that the most recent bailout will be put to the Greek people in a referendum, but the date has yet to be fixed. The vote would come after the details of the deal have been finalised, but will force a fog of uncertainty to descend on the stock and forex markets – whatever the details of the deal which ultimately would provide assurances against further sovereign debt worries in Italy and Spain, they could be undone by a Greek “no” vote.

Mr Papandreou will campaign for a “yes” vote, but there is considerable anger within the Greek electorate who appear to have been given a choice between years of financial hardship stemming from a yes vote for the austerity measures and the chaotic uncharted waters of a “no” vote. In the event that Greece declines the help it has been offered by the rest of its EU partners, it is uncertain that other deals might be put on the table. Were this to be the case, a Greek sovereign default would only be a matter of time – it would be close to political suicide for any leaders outside Greece to offer to bail them out further.

Mr Papandreou seems to be gambling that he can convince the Greek people that there only choice is to fall into line behind the austerity plans and thereby defuse some of the popular anger at the measures. It’s a very bold move and it looks as if the Greek PM doesn’t have a “plan B”. Markets around the world have fallen on the news giving up much of the gains made since the deal emerged last week. The Euro is falling back against other leading currencies.