Greek government struggl after bailout bombshell

AVINASH TRIPATHI 4111015015

INTRODUCTION
Greek Prime Minister George Papandreou faced calls

from within his own party to step down on Tuesday after he threw the nation's euro zone membership into jeopardy by calling a referendum on a bailout package agreed only last week.
A leading lawmaker from Papandreou's socialist party quit

while two others said Greece needed a government of national unity followed by snap elections, which the opposition also demanded.
Business executives in Greece expressed despair at how

the country was being run and markets speculated on whether Italy will be the next euro zone country to slide into a debt crisis.

CONTENT
Papandreou , whose PASOK party has already suffered

several defections as it pushes waves of austerity measures through parliament while protesters rally in the streets, said he needed wider political backing for the budget cuts and structural reforms demanded by international lenders.
Fellow PASOK lawmaker Vasso Papandreou demanded a

new government to ensure Greece receives the 130 billion-euro rescue deal agreed at a euro zone summit only last week.
Elsewhere in the euro zone, politicians complained Athens

was trying to wriggle out of the bailout package, concerned not so much about the fate of Greece as the possibly dire consequences for the entire currency union of the referendum.

CONT
The Greek opposition demanded a snap election and

financial markets, which had calmed down after euro zone leaders agreed the second Greek bailout, took Papandreou's bombshell badly.
Shares in banks dived, investors fled to the safety of

German bonds and Italian borrowing costs climbed despite European Central Bank action. Investors speculated that Italy might follow a similar path.
The FTSEurofirst 300 index of top European shares was

down almost four percent, due not only to the possibility of a disorderly Greek default but chaos surrounding the euro zone's attempts to stop the debt crisis spreading to more significant economies such as Italy.

CONT..
Euro zone banks exposed to Greece and Europe's

bigger, troubled economies, suffered particularly. Shares in France's Societe Generale tumbled 17 percent and Credit Agricole was down almost 12.5 percent.
Investors sold off bonds issued by Italy and Spain --

two major economies with debt problems which would be much tougher to rescue than Greece, one of the euro zone's smallest members.
Traders said that prompted the ECB to step in and

buy the bonds of both countries as implied Italian borrowing costs hit a three month high around 6.26 percent.

CONCLUSION
Greece is due to receive an 8 billion-euro tranche in

mid-November, but that is likely to run out during January, around the time of the referendum, leaving the government with no funds if there is a "no" vote.
A survey carried out on Saturday showed that nearly

60 percent of Greeks viewed the agreement on the bailout package as negative or probably negative.
Traders said that prompted the ECB to step in and

buy the bonds of both countries as implied Italian borrowing costs hit a three month high around 6.26 percent.