Athens - Greek Prime Minister George Papandreou fought off a
barrage of criticism to win the backing of his cabinet on Wednesday to push
ahead with a referendum the government said would take place as soon as
possible on a European Union debt bailout deal.
Some of his party lawmakers called for him to quit for
jeopardising Greek euro membership with his shock decision to call a popular
vote, a move that pummelled the euro and global stocks, but the cabinet support
at least gives him a stay of execution before a confidence vote in parliament
on Friday.
"The referendum will be a clear mandate and a clear
message in and outside Greece on our European course and participation in the
euro," Papandreou told the seven-hour cabinet meeting, according to a
statement released by his office.
"No one will be able to doubt Greece's course within
the euro."
After the apparent show of unity at home, Papandreou will
later face the leaders of France and Germany, who summoned him for crisis talks
in Cannes, before a G20 summit of major world economies, to push for quick
implementation of the bailout deal.
Whatever the result of the referendum, Papandreou's gamble
guarantees long weeks of uncertainty just when the 17-nation currency area was
desperate for a period of calm to implement remedies agreed last week to
overcome its sovereign debt crisis.
"This announcement took the whole of Europe by
surprise," French President Nicolas Sarkozy said in a rare televised
address on the steps of the Elysee palace in Paris. "The plan ... is the
only way to solve Greece's debt problem."
Japan's finance minister, Jun Azumi, echoed his comments, as
the Nikkei share average fell as much as 2% on Wednesday. "Everyone is
bewildered," he said.
Timing, result unpredictable
Greek government spokesperson Elias Mossialos said the
referendum would take place "as soon as possible, right after the basics
of the bailout deal are formulated", but would not be drawn on whether
that meant before Christmas.
With so much of the detail of the deal to keep Greece afloat
still to be nailed down, the vote seems unlikely to take place before the end
of the year and Greek officials said on Monday it was likely in mid-January.
Opinion polls suggest most voters think it is a bad deal,
but much will depend on how Papandreou frames the debate, either on the bailout
- and hence the cuts that will follow - or membership of the euro, which
remains popular.
German Finance Minister Wolfgang Schaeuble told Wednesday's
Financial Times Deutschland newspaper he was confident the Greeks would support
the government's reforms in the referendum.
"If Greece accepts the burden and efforts required by
the aid programmes, if it wants to stay within the eurozone, then we will
support it," Schaeuble said.
Papandreou said Greece's partners would support its policies
and urged the G20 meeting in Cannes to agree policies that "make sure
democracy is above market appetites".
But his move is bound to embarrass G20 host Sarkozy as he
tries to coax big emerging nations such as China into throwing the eurozone a
financial lifeline by investing an expanding bailout fund.
It could also further undermine dwindling political support
in northern Europe for aiding Greece.
The chairman of eurozone finance ministers, Jean-Claude
Juncker, said Greece could go bankrupt if voters rejected the bailout package.
Confidence vote
Papandreou's most immediate hurdle is the parliamentary
confidence vote on Friday.
"We believe the government will once again win a vote
of confidence in order to proceed with its plans," government spokesperson
Angelos Tolkas told reporters. "We will not back down on anything we have
to do to save the country."
Six senior members of Greece's ruling PASOK socialists,
angered by Papandreou's decision to call a plebiscite on the €130bn rescue
package, said he should make way for a "politically legitimate"
administration.
During the cabinet meeting that wrapped up around 3 a.m.
after seven hours, some ministers questioned the timing of the referendum and
criticised the fact they had been kept in the dark - even the finance minister
had not been told - and a handful were openly against it, government sources
said.
"I think this was the wrong decision and we must take
it back," one minister was quoted as saying. "We must not risk our
position in the euro."
A leading PASOK lawmaker earlier 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, and there is still plenty
of dissent.
"For the first time we are admitting publicly that our
policy lacks legitimacy," one minister said he told the meeting, speaking
to reporters on condition of anonymity.
Shares pounded
Doubt about Europe's ability to contain the debt crisis has
once more sent investors fleeing from riskier assets across the world. Asian
shares fell and the euro hovered near three-week lows against the dollar on
Wednesday.
US stocks tumbled more than 2.5% and European shares posted
their biggest one-day loss in more than a month on Tuesday.
The risk premium on Italian bonds over safe-haven German
Bunds hit a euro-lifetime high on Tuesday, raising Rome's borrowing costs to
levels above 6% that proved unsustainable for Ireland and Portugal.
European bank shares dived on fears of a disorderly Greek
default and the Athens Stock Exchange suffered its biggest daily drop since
October 2008, with the general index shedding 7.7%.
Greece is due to receive an €8bn IMF/EU aid tranche in
mid-November, but that is likely to run out during January, around the time of
the referendum, leaving the government with no funds if there is a
"no" vote.
Dutch Finance Minister Jan Kees de Jager said the IMF might
have difficulty paying out that tranche because of the looming referendum.
"I can imagine it will be difficult for the IMF to decide about the
tranche but there will be uncertainty ... it is problematic," he told the
Dutch parliament.