Greek Prime Minister George Papandreou has said that he would push ahead with a referendum on an EU bailout deal, defying demands from lawmakers of his own party that he quit for jeopardising Greek membership of the euro.
During a cabinet meeting that lasted over 5 hours, some ministers backed Papandreou's decision, others questioned the timing of the referendum and criticised the fact they had been kept in the dark, and a handful were openly against it.
Prime Minister George Papandreou told a cabinet meeting that the plan to hold a referendum on a European Union aid package will make clear the country belongs in the euro and market turmoil will be short-lived.
Papandreou said Greece's partners will support its policies and urged a meeting of G20 leaders this week in Cannes to agree policies that "make sure democracy is above market appetites".
Greek government spokesman Angelos Tolkas has said "We believe the government will once again win a vote of confidence in order to proceed with its plans, we will not back down on anything we have to do to save the country."
One minister was quoted as saying "I think this was the wrong decision and we must take it back, we must not risk our position in the euro."
A leading PASOK lawmaker quit the party, narrowing Papandreou's slim majority to 152 of 300 seats, and several others called for a government of national unity followed by a snap election, which the opposition also demanded.
Papandreou needs 151 votes to enact the referendum. If any of the dissenters votes against, it cannot be held.
However, analysts have said that unrest in his PASOK party could still result in Mr Papandreou's government collapsing.
The problem is that one of his own MPs Melina Apostolaki has resigned over at the referendum decision, thereby reducing the Prime Minister's parliamentary majority to just two votes.
With another of Mr Papandreou MPs calling for the referendum to be shelved, analysts still believe that the government could still collapse.
European politicians react
European politicians expressed incredulity and dismay at Papandreou's announcement this evening that took everyone by surprise, including his own finance minister.
In a statement after French President Nicolas Sarkozy and German Chancellor Angela Merkel conferred by telephone.
Sarkozy's office said: "France and Germany are determined to ensure, with their European partners, the full implementation in the quickest time frame, the decisions adopted at the summit, which are today more important than ever."
Germany and France say eurozone leaders and the International Monetary Fund will meet tomorrow to discuss ways to implement the rescue package for Greece.
A spokesperson has said that talks are also planned with the Greek government ahead of a summit of G20 nations in the French city of Cannes later this week.
Minister for European Affairs Lucinda Creighton has said that Greece's decision had sent efforts to sort out the region's debt crisis "stumbling back to square one."
"Legitimately there is going to be a lot of annoyance about it."
A Greek referendum may not be held until early 2012 and there is a strong possibility it would be rejected given the austerity measures required in return for the €130bn deal.
World stocks plunge on new Greek worries
Global markets sank on learning of the possibility that Greek voters will reject the latest EU bailout plan as Europe's most powerful leaders headed back to the summit table.
The markets fear that Greece could again be on the path to a default.
That raised new fears about Italy, potentially the next domino in any eurozone meltdown, with the yield on its 10-year bonds hitting 6.2%, close to the record reached in August.
In the US, plunging bank shares pulled down the broad-based S&P 500-stock index by 2.8%.
The blue-chip Dow Jones Industrial Average dropped 2.5%, while the tech-heavy Nasdaq Composite slid 2.9%.
In London, the benchmark FTSE-100 index of top companies lost 2.2%, while Paris's CAC-40 slumped 5.4% and Frankfurt's DAX was down 5%.
The euro also fell another 1.5c to settle just below $1.37, after topping $1.42 last Thursday on revived confidence, following the EU leaders' reaching a comprehensive plan to stabilise the eurozone.
