Greek PM calls for vote on austerity

With leaders of the world's 20 biggest economies getting ready for a summit from Thursday focused on the economic crisis, Papandreou's unexpected move triggered fears that the rescue efforts could begin to rapidly unravel.

All of Europe's main stock markets registered sharp falls at the start of trading. The German blue-chip DAX 30 stocks index opened 3.37 percent lower and French shares plunged 3.68 percent.

And there was meltdown in Athens where Greek stocks plunged 6.31 percent amid warnings that a rejection of a deal that is deeply unpopular here would force Greece to leave the 17-nation bloc which uses the euro single currency.

Padhraic Garvey, an analyst at ING, said that the referendum would effectively be a vote on Greek participation in the euro.

“By definition, resistance to the bailout package ... would imply a preference to find another route and the only other viable route would be an exit” from the euro, Garvey said.

Papandreou, who has 153 deputies in the 300-seat Greek parliament, has faced increasing dissent within his own party over the tougher austerity policy monitored by the EU and the International Monetary Fund that has sparked general strikes and widespread protests, many of them violent.

As well as agreeing to a referendum, which is likely to take place early next year, the prime minister will also submit himself to a confidence vote in parliament to be held on Friday — the second day of the G-20 summit in Cannes.

“An expression of confidence in the policy to be followed is more necessary than ever,” Papandreou said as he made his stunning declaration late Monday.

“The command of the Greek people will bind us,” the premier said.

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