Shares Tumble on Greek Referendum

Greek Prime Minister George Papandreou stunned European leaders, and financial markets, with an announcement Monday night that his government would hold a referendum on a new aid package for Greece.

Papandreou spoke to the Greek Parliament and talked about how Greece has a duty to highlight the responsibility of the citizen. “The citizen is the source of strength and our very existence. We trust the citizens.”

A fitting speech from Athens. After all, the city is the birthplace of western Democracy.

This was the latest chapter in the Greek debt crisis that’s been playing out for a year-and-a-half now. But yesterday’s call for a referendum vote was much more than just another bump in the road. If voters say no, they’re essentially saying, we don’t like the conditions you’ve placed on us and we won’t pay back our loans.

“It’s a big deal because if Greece goes into default that will have repercussions all across Europe,” said Bhaskar Chakravorti, senior associate dean for international business at the Fletcher School at Tufts University. “That could bring Europe to recession. And then, by transference, that would take the United States potentially back into a recessionary environment.”

That’s problem number one.

“Problem number two is many of the US banks have financial interconnections with the banking system in Europe,” said Chakravorti. “And if a deal isn’t struck in Europe, then that will have an impact on the US financial services industry.”