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Greece holds firm on shock referendum

GREECE'S prime minister held firm today to his shock decision to call for a referendum on a hard-fought European debt deal, despite anger from abroad, market turmoil across the world and dissent from within his own party.

George Papandreou's government still faced a battle for survival, with a vote of confidence scheduled for Friday and a grilling from frustrated European leaders expected later in the day ahead of the Group of 20 summit in the French Riviera.

After a gruelling seven-hour Cabinet meeting, government spokesman Ilias Mossialos said Papandreou's ministers expressed "total support for the initiatives taken by the prime minister". He said the referendum would be held "as soon as possible".

However, government officials said two ministers still had strong reservations with the idea of a referendum, which will be the first in Greece since the country voted to abolish the monarchy in 1974. The officials spoke on condition of anonymity to reveal details of the cabinet meeting.

Mr Papandreou told his ministers that putting the issue to the Greek people was the only way to safeguard the European deal.

"We will not implement any programme by force, but only with the consent of the Greek people," he said. "This is our democratic tradition and we demand that it is also respected abroad."

A referendum, he said: "Will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro."

"The dilemma is not this government or another one, the dilemma is yes or no to the agreement, yes or no to Europe, yes or no to the euro," he added.


World markets were hammered after Papandreou's surprise Monday night announcement, amid fears the vote could unravel a deal which took European leaders months of complex negotiations among themselves and with banks to reach.

Greece's general price index plunged to close down 6.92pc, while in Germany the Dax index, the major stock market average, lost 5pc -- the equivalent of about 600 points on the Dow. The French stock market closed down 5.4pc, the Italian 6.7pc and London 2.2pc.

The Dow Jones industrial average finished down nearly 300 points, or 2.5pc.

European leaders made no secret of their displeasure. "This announcement surprised all of Europe," said French President Nicolas Sarkozy, who has been scrambling to save face for Europe before he hosts leaders of the G20 major world economies.

"Giving the people a say is always legitimate, but the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts," he said. Mr Sarkozy and German Chancellor Angela Merkel, agreed to convene emergency talks today in Cannes, France, to which Papandreou was also summoned.