European markets plunged Tuesday in reaction to Greek Prime Minister George Papandreou's proposal to hold a referendum on whether to approve the European debt-relief plan agreed to last week.
Major European markets fell two percent or more in early trading.
Mr. Papandreou has been a staunch supporter of the plan that could cut Greece's debt by about $140 billion, while binding his country to years of austerity measures. But Mr. Papandreou told ruling Socialist party members in Parliament Monday that the “command of the Greek people will bind us.” He said if the Greek people do not want it, the plan will not be adopted.
European and world leaders have praised the adoption of the plan aimed at cutting Greek debt and calming world financial markets worried about a Greek default. The agreement also forces European banks to increase their cash reserves and boosts the continent's bailout fund for future financial emergencies.
But the Greek people for months have recoiled at the tax increases and spending cuts the Athens government has been forced to adopt to satisfy its international creditors. They have staged repeated strikes in protest, some of them violent.
One Greek survey showed 60 percent of those questioned took a negative view of the Brussels agreement, reached in the middle of the night last Thursday.
The Greek leader's call for a referendum came as new reports in Europe show that the economic fortunes of the 17 eurozone nations are markedly weakening, with higher unemployment and diminished growth prospects for 2012. Until Monday, there had been no suggestion of a referendum on the plan.
The continent's Eurostat statistics agency reported that the unemployment rate hit 10.2 percent in September, an 11-month high. That left more than 16 million people out of work, the biggest number in the 13 years the agency has kept records.
Financially troubled Spain had Europe's highest jobless rate, more than 22 percent, and Austria the lowest, just under 4 percent.
Meanwhile, the Paris-based Organization for Economic Cooperation and Development predicted that collectively the economies of the bloc of countries that use the euro will virtually stall in 2012, with some of them sliding into a recession. The agency projected growth of only three-tenths of one percent, less than a sixth of the 2 percent growth that was projected just five months ago.
The OECD said there would be “patches of mild negative growth” in some eurozone nations.
Eurostat said the inflation rate for the bloc of nations that use the euro currency held steady at a 3 percent annual rate in October, the highest figure in three years.
OECD praised European leaders for adopting last week's debt-relief plan. But it said details of its implementation should be quickly made public to reassure world financial markets. The agency said European economic growth could be better than expected if the debt plan proves to be successful.
Japan said Monday it would continue to buy European government bonds. But, like China last week, Japan stopped short of saying it would invest in the eurozone's expanded bailout fund to aid debt-ridden countries in the future.
The OECD, which promotes economic growth, said U.S. economic prospects are weak as well, echoing projections made by key American finance officials. The agency projected that the world's largest economy would advance a sluggish 1.8 percent next year, down from the 3.1 percent figure it predicted last May.
The agency released its report three days ahead of the Group of 20 meeting in Cannes, France, grouping leaders from the world's industrial and developing nations.
