China warns it cannot 'cure' eurozone's debt crisis
Andrew Lim, banking analyst at Espirito Santo in London, said: "If Greek voters reject the unpopular bailout plan it could result in a "hard default", which could force banks to take losses of about 75pc on their Greek sovereign bonds, trigger payouts on credit default swap insurance contracts, and raise the threat of a systemic risk.
"If we get a hard default in Greece, it will exacerbate the situation with Italy and Spain. It just increases the problem of Italy going down the same route, and that's the real risk.
Prime Minister George Papandreou announced plans for the referendum in response to riots that followed last week’s proposal, as well as dissent from within his own Socialist party.
He said: “The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted.”
Staging a referendum, reportedly to be held in January, threatens to throw the eurozone further into crisis as the majority of Greeks object to the bail-out, according to a survey published last week.If Greece were to reject the plan, which requires deep spending cuts, it would risk a full-scale default and possible ejection from the euro. The country could even run out of money to pay civil servants.
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