Investors abandoned the markets today after the Greek Prime Minister fuelled uncertainty by announcing shock plans to hold a referendum on the eurozone rescue plan.
The FTSE 100 Index opened more than 2% lower after George Papandreou’s unexpected move cast fresh doubts on last week’s much-heralded proposals to protect Europe from collapsing into recession.
The ISEQ in Dublin also opned more than 2% lower while Germany's Dax was 4.3% down and the Cac-40 in France was more than 3% lower.
The dismal opening in Europe followed a weak session in Asia where fears over the viability of the three-pronged EU rescue deal and weak Chinese data troubled investors.
EU leaders last week agreed with banks a 50% haircut on Greek debt and to boost the eurozone bailout fund to €1tn, which follows an earlier decision to shore up banks’ finances.
However, Greek leader Mr Papandreou last night threw a spanner in the works when he announced his debt-strapped country will hold a vote on whether to accept the deal next January.
The decision came following large-scale protests in Greece against austerity measures demanded by the European Union but analysts have warned a “no vote” could have a serious knock-on effect.
Michael Hewson, analyst at CMC Markets, said if Greece voted against the eurozone deal, the fallout could result in “a complete meltdown of the European banking system and throw Europe into turmoil”.
Jordan Lambert, trader at Spreadex, said: “Considering how persistently Greece and Germany have pushed for this long awaited deal it seems quite unnecessary to risk undoing all the progress to date.”
The latest twist to the debt crisis followed growing uncertainty over the aid package, which initially triggered a surge on world markets as traders took hope from the proposals.
The funding of the deal came into question after reports emerged that the Chinese government may not contribute as much money to the eurozone bailout fund as previously hoped.
A raft of weak eurozone data yesterday underlined the challenge facing policymakers who are fighting to solve the crisis.
Stubborn inflation, high unemployment and downgraded forecasts from the Organisation for Economic Co-operation and Development added to the waning optimism.
Meanwhile, international broker MF Global emerged as the first major casualty of the eurozone’s debt woes after it filed for bankruptcy protection in the US.
Concerns about the company’s holdings of European debt caused its business partners to pull back last week, which led to a severe cash crunch, the company said.