CANNES, France — Europe’s newly crafted plan to stem its debt crisis was in turmoil Tuesday, a day after Greek Prime Minister George Papandreou unexpectedly called for a national referendum on the emergency measures meant to keep his country from defaulting.
His move immediately put his government at risk amid harsh criticism at home and from foreign leaders, who said he was taking a gamble that puts the world economy in peril.
European leaders, who had produced a rescue plan last week after a series of marathon meetings, hastily scheduled a meeting today with Papandreou to contain the damage to their plan, their credibility and global markets.
Rocked by the sudden uncertainty over Europe’s fate, U.S. markets tumbled, with the Standard and Poor’s 500-stock index falling 2.8 percent. The losses in Europe were even steeper. Germany’s DAX index was down 5 percent, while stocks in France and Italy fared even worse.
European leaders produced a rescue plan last week aimed at bailing out Greece, heading off possible defaults by other cash- strapped governments such as those of Italy and Spain and shoring up shaky European banks that had bought risky government bonds. The deal had sent global markets soaring on hopes that it would resolve the chief threat to the world’s economic recovery.
But the euphoria vanished with Papandreou’s announcement that he would ask his citizens to vote on the plan, which has been widely criticized by Greeks. An earlier Greek bailout, which required the government to enact sharp cuts in spending and other austerity measures, prompted violent protests in the streets of Athens.
French President Nicolas Sarkozy, who will host the Group of 20 world economic powers Thursday and Friday, said on French television that the meeting scheduled for today in Cannes with Papandreou is intended to keep the new program on track. Sarkozy called the rescue plan “the only way to solve Greece’s debt problem.” World Bank president Robert Zoellick warned that a referendum “is a roll of the dice” when world markets are already on edge.
But Papandreou said the referendum was an important democratic step in a country racked by economic problems and torn by social strains.
