Greek Prime Minister George Papandreou has offered voters a referendum on the latest EU deal to rescue the country from bankruptcy, which could lead to Greece's exit from the eurozone and new parliamentary elections.
The Greek premier called the vote a 'supreme act of democracy'
Greece's government was thrown into turmoil Tuesday after Prime Minister George Papandreou called for a referendum on the country's newest EU bailout deal, a vote which threatened to take down the government and remove the country from the eurozone.
Papandreou told parliament on Monday that voters would decide for themselves whether to accept the terms of the bailout plan, which include a 50-percent write-off of public debt and 100 billion euros in fresh public aid.
"This is a supreme act of democracy and of patriotism for the people to make their own decision," he said. "We have a duty to promote the role and the responsibility of the citizen."
All 27 EU states agreed to the new bailout deal for Greece at their summit last week
But politicians in Greece and across Europe were appalled by the idea of the referendum. One lawmaker in Papandreou's Socialist party defected to the opposition, leaving him with a slim majority of 152 in the 300-seat parliament.
Another group of Socialists called for early elections and a national unity government to safeguard the bailout deal. Papandreou's government is to face a vote of confidence on Friday.
Rainer Brüderle, parliamentary leader of the business-friendly German Free Democratic Party, which is part of the government, said it seemed as if Papandreou was trying to "wriggle out of what was agreed" by all EU countries.
"Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece - wrong decisions were made and the country maneuvered itself into this crisis," he told public radio broadcaster Deutschlandfunk.
Markets plunged around the world in reaction to the referendum plans, as investors worried a voter rejection of the bailout could push Greece into bankruptcy and damage European banks, already made vulnerable by the crisis. The German DAX index dropped 6.2 percent in the afternoon before recovering slightly, while Athens stocks had fallen seven percent.
Brüderle said he was 'irritated' by Papandreou's decision
News of the referendum was especially surprising because, just the week before, Papandreou had pleaded with EU leaders at a special summit to continue supporting Greece in its financial troubles.
The official EU response was more tempered, with EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso saying in a statement that they "fully trust that Greece will honor the commitments undertaken in relation to the euro area and the international community."
French President Nicolas Sarkozy appeared more concerned, saying that the rescue plan for Greece was "the only possible way" to resolve the problem of Greek debt. The solidarity of eurozone members required "everyone to agree to necessary efforts," he added.
After a conversation with German Chancellor Angela Merkel, Sarkozy hastily arranged a special meeting in Cannes, France, on Wednesday to discuss the issue. That meeting will come ahead of a planned G20 summit, to be attended by representatives from the group of 20 leading economies, later in the week.
Prospect of leaving eurozone
If Greek voters were to reject the bailout plan, some eurozone country may decide to no longer contribute to its financing, according to Jörg Rocholl, president of the European School of Management and Technology in Berlin.
"If it doesn't work out - and that's the way it's looking right now, because there is considerable resistance among the Greek populace - it could mean that other countries don't feel obliged to fulfill their promises," Rocholl told ZDF television. If aid were cut, he added, "Greece can't remain in the euro."
There is no precedent for a country to leave the eurozone, and the German chancellor has repeatedly insisted that such an option was off the table.
Greece has been rocked by protests against government austerity measures
Nick Malkoutzis, deputy editor of the Kathimerini newspaper's English edition, said there were a number of steps yet to be taken before the referendum actually appears on a ballot for Greek voters, such as parliament's vote of confidence in government on Friday.
"There are no guarantees," he told Deutsche Welle. "We have to get to January, when the referendum will supposedly be held, with all the factors remaining the same. By January, everything may have changed."
A survey showed on Saturday that nearly 60 percent of Greeks view the EU summit last week as "negative" or "probably negative."
Another question is what exactly Greeks will be voting on, Malkoutzis added.
"The Greek constitution doesn't allow questions of a fiscal nature to be put to a referendum," he said. "So what will they vote on? And will those questions be seen as a way of trying to blackmail the Greek public into renewing its support for this government? There are so many open questions that it's very difficult to predict [the vote's outcome.]"
Author: Andrew Bowen, Joanna Impey
Editor: Nancy Isenson