Greek Prime Minister George Papandreou risks a new euro zone crisis with his shock announcement that he will put the bailout deal struck last week to try to contain the bloc's debt mountain to a referendum of voters already angry at harsh cuts.
Euro zone leaders agreed to hand Athens a second, 130-billion-euro bailout and a 50%write-down on its enormous debt to make it sustainable.
Papandreou, whose ruling Socialist party has suffered several defections as it pushes waves of austerity measures through parliament while protesters rally outside, said he needed wider political backing for the fiscal measures and structural reforms demanded by international lenders.
Analysts said holding a referendum — likely to be early next year and only Greece's second in almost 40 years — was baffling, given that the latest opinion poll showed a majority of Greeks took a negative view of the bailout deal.
And the renewed uncertainty will be likely be an embarrasment for G20 leaders in France this week trying to coax China into throwing the euro zone a financial lifeline.
Early reactions to the surprise move ranged from accusations that Papandreou was gambling with the country's future and predictions of default, to questions over the legality of the referendum and statements by lawmakers that a No vote would force his resignation and early elections.
Nobel prize-winning economist Christopher Pissarides caught the mood of uncertainty: "It is difficult to predict what will happen to Greece if they reject it. It will be bad enough for the European Union and the euro zone in particular, but it will be far worse for Greece.
"In the scenario of a 'no' vote Greece would declare bankruptcy immediately, they would default immediately. I can't see them staying within the euro," he said.
REFERENDUM ON MEMBERSHIP
Finland's Europe Minister Alexander Stubb said the referendum would be a vote on Greece's membership of the euro.
"The situation is so tight that basically it would be a vote over their euro membership," Stubb told broadcaster MTV3.
Analysts were divided over whether Greek voters would accept the deal, but agreed that a damaging month or two of market volatility lay ahead while pollsters repeatedly took the Greek voters' pulse and European leaders looked on nervously.
The immediate market reaction to the announcement was negative, the euro extending losses against the dollar and tumbling more than 2% to a session low.
European shares were seen opening around 1.1% lower, according to financial bookmakers.
Opposition New Democracy leader Antonis Samaras will visit President Karolos Papoulias on Tuesday to discuss developments and push for snap elections, party officials said.
"Mr. Papandreou is dangerous, he tosses Greece's EU membership like a coin in the air," party spokesman Yannis Michelakis said. "He cannot govern and instead of withdrawing honorably, he dynamites everything."
UP TO THE VOTERS
Papandreou told the Greek voters it was up to them to decide the country's fate.
"We trust citizens, we believe in their judgment, we believe in their decision," he told Socialist party deputies. "In a few weeks the (EU) agreement will be a new loan contract… we must spell out if we are accepting it or if we are rejecting it."
Papandreou, grappling with Greece's worst financial crisis in 40 years, said the referendum would take place in a few weeks. Finance Minister Evangelos Venizelos told Greek TV it would probably be held early next year.
Venizelos checked into an Athens hospital on Tuesday with stomach pains but was expected to be discharged later, his office said.
"I never expected Papandreou to take such a dangerous and frivolous decision," said Dora Bakoyanni, former foreign minister and leader of the small centre-right Democratic Alliance party. "All the international media will say that Greece itself is putting the EU deal at risk."
Papandreou also said he would ask for a vote of confidence to secure support for his policy for the rest of his four-year term, which expires in 2013.
Analysts said he was likely to win that, despite dissent among his parliamentary team, and parliament officials said the confidence debate would begin on Wednesday, with a vote on Thursday or Friday.
MONEY RUNNING OUT?
Greece is due to receive an 8 billion euro 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 was a 'no' vote.
Germany issued a statement saying the EU was working hard to put the second Greek aid package in place by the end of the year and had no comment on the referendum.
Swinging opinion polls would leave markets fluctuating and Greece's EU partners dangling.
A survey carried out on Saturday showed that nearly 60% of Greeks viewed the agreement on the bailout package as negative or probably negative.
The last time Greeks held a referendum was in December 1974, when they voted to abolish the monarchy shortly after the collapse of a military dictatorship.
