Greek cabinet backs PM's call for bailout referendum

Greece's government spokesman says a marathon cabinet meeting has concluded with ministers expressing unanimous support for Prime Minister George Papandreou's surprise decision to call for a referendum on a hard-won European plan to rescue the Greek economy.

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

However, government officials said two ministers still had strong reservations to 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.

Papandreou held firm early Wednesday to his decision to call for a referendum, despite anger from abroad, market turmoil across the world and dissent from within his own party.

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 a Group of 20 summit in the French Riviera.

World markets hammered

World markets were hammered across the world 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 6.92 per cent, while in Germany the Dax index, the major stock market average, lost five per centthe equivalent of about 600 points on the Dow. The French stock market closed down 5.4 per cent, the Italian 6.7 per cent and London 2.2 per cent.

European leaders had made no secret of their displeasure.

"This announcement surprised all of Europe," said a clearly annoyed French President Nicolas Sarkozy, who has been scrambling to save face for Europe before he hosts leaders of the G20 major world economies later this week.

"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.

Sarkozy, Merkel to hold emergency talks

Sarkozy and German Chancellor Angela Merkel, who have been at the forefront of Europe's efforts to contain the debt crisis, talked by phone and agreed to convene emergency talks Wednesday in Cannes, France, to which Papandreou was also summoned to discuss implementation of the bailout.

French lawmaker Christian Estrosi was even more direct, saying on France-Info radio that the Greek move was "totally irresponsible."

"I want to tell the Greek government that when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities," Estrosi said.

Dutch Prime Minister Mark Rutte, meanwhile, said he would try to prevent the referendum plan, saying he would "attempt to see that it doesn't happen." But he conceded it was up to Greece how it approves or rejects the European deal.

Papandreou's decision had left his government teetering on the verge of collapse Tuesday as his own deputies rebelled and his Socialist party saw its parliamentary majority whittled down to just two seats in the 300 member legislature.