Reports: Greek leader calls off referendum

A demonstrator waves flag in front of the parliament building in Athens, Greece.

Steve Chiotakis: All eyes on Greece today and a referendum
on the European bailout that may or may not happen now. Prime Minister George Papandreou's
reportedly walking back a planned referendum on deep public sector cuts. A vote he announced -- much to the surprise of other European officials -- a few days ago.

Now Papandreou is in talks with the government's opposition party on how to move forward with those cuts and the bailout. All the while, leaders from the world's leading economies are meeting for the G20 today in France.

Paul Wachtel is professor of economics at New York University. Professor, thanks for being with us.

Paul Wachtel: My pleasure.

Chiotakis: What does it mean that the prime minister is reportedly going to scrap this referendum?

Wachtel: I think he's backing off from a very, very risky situation. A referendum would probably mean that the Greek public would vote against all the austerity. The consequence of that would probably be the fall of the government, the default by Greece on its debt, and probably Greece having to leave the eurozone -- which would create an absolutely devastating crisis throughout Europe.

Chiotakis: Do you think he played a game of chicken with his opposition party?

Wachtel: I think that might be the case, that he's trying to scare them into going along with what he feels is necessary. Because the kind of reforms and austerity plans in Greece are very hard to swallow.

Chiotakis: And very unpopular, and in the opposition party, of course, was against them.

Wachtel: They're very unpopular amongst the Greek public, who might not really understand how serious the situation is, and what this means for the whole European community.

Chiotakis: All right, let's say -- and we don't know absolutely for sure -- but let's say that this plan for the vote is scrapped officially. Then where do we go?

Wachtel: OK, it takes us back to where we were a few days ago. Responsibility is in the hands of the Greek government to bring reforms to the economy. The willingness of the European community to support Greek debt depends upon those reforms taking place, and all of that is a big question mark.

The supposed agreement reached last Wednesday by the leaders of Europe is very unspecific, it's not at all clear that Europe has really made a decision to support the Greek government -- even if the Greek government survives and is willing to undertake some of the reforms that are necessary.

Chiotakis: Professor Paul Wachtel, of the economics department at the Stern School of Business over at NYU. Professor, thank you.

Wachtel: You're very welcome.

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