Referendum ‘no’ could leave Greece bankrupt, says Juncker

Greece could face bankruptcy if the population ends up voting against the European Union’s latest financial aid package in a referendum, the chairman of the Eurogroup countries said on Tuesday.

Expressing concern at Prime Minister George Papandreou’s snap decision to call a referendum on the 130 billion euro ($180 billion) bailout package, Jean-Claude Juncker said it had piled «great nervousness and insecurity» on top of an already highly insecure situation for the euro zone economy.

Asked whether Greece could end up bankrupt if Greeks were ultimately to reject the package, Juncker told RTL Radio:

“I cannot exclude that this would be the case, but it depends on how exactly the question is formulated and on what exactly the Greek people will vote on.”

“It is something that brings a great nervousness, that adds great insecurity to already great insecurity and therefore we need to see calmly how we will deal with this.”

Fighting for his political survival after barely two years in office, Papandreou delivered a shock to Greece, Europe and the rest of the world late on Monday when he announced a referendum on the bailout, which was agreed on October 27.

The decision sent financial markets into a tailspin on Tuesday, raising concerns that not only the rescue of Greece could unravel, but that debt problems in Italy, Spain and beyond could worsen, threatening the euro zone’s survival.

Juncker said Papandreou had not discussed his thinking with European colleagues before announcing his decision, but said it was something that had been on the cards for a while.

“In the last months he has hinted and said clearly that he might have to hold a referendum, then he dropped the idea again. Now he’s picked it up and the initiative he has taken raises an enormous amount of questions,» Juncker, who also serves as Luxembourg’s prime minister, said.

“Can we under these conditions pay out the 6th tranche, the eight billion euros, that we decided on two weeks ago when we don’t know whether the Greeks still agree with what was agreed?» he asked, referring to a decision to release the next payment of EU/IMF funds, part of a separate 110 billion euro bailout.

“What’s with the plan we drew up last Wednesday and Thursday? What questions exactly does the prime minister want to ask? We don’t know any of that and therefore it is too early to give an integral assessment of the situation.”

Juncker said he had spoken to German Chancellor Angela Merkel, French President Nicolas Sarkozy and the president of the European Council, Herman Van Rompuy, at length about the situation on Tuesday morning, and said euro zone leaders would discuss it further on the sidelines of the G20 gathering in Cannes on Thursday and Friday.

“It is too early to say something definitive but it does not make it easier. It brings new nervousness into financial markets and into (…) European policy making. I would have liked to do without this piece of news,» he said.

“If the Greek people say no to everything that has been agreed so far, then I don’t see either how we can continue with the Greeks on good terms. But it is to early to answer these questions.”

In a statement, Van Rompuy and European Commission President Jose Manuel Barroso said they «fully trusted» Greece would live up to the commitments made at the October 26-27 summit, when the 130 billion euro aid package was agreed.

It is not clear when the referendum, if Papandreou goes ahead with it, will be held. The prime minister suggested it would be held in the coming weeks, but the finance minister said it may not be put to the people until January 2012.

Juncker said the critical issue was how any question was worded and what message the vote delivered.

“Maybe if the Greek people are confronted with the ultimate responsibility, they will decide in the right way. Therefore it would be useful if we avoided…. negative and nasty comments about the Greek people following Mr Papandreou’s initiative. They simply don’t deserve that.» [Reuters]