Greece risks meltdown after bailout vote bombshell

French, German leaders summon Greek PM to crisis talks in Cannes to push for quick implementation of new bailout deal ahead of G20 summit.

French FM, Bank of France governor (R) 311  (photo credit: REUTERS/Benoit Tessier)
French FM, Bank of France governor (R) 311
(photo credit: REUTERS/Benoit Tessier)
ATHENS - The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.
Caught unawares by his high-stakes gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.
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The euro and global stocks were pummelled on financial markets after the Greek move threw into question the survival of crucial efforts to contain the euro zone's sovereign debt crisis.
Six senior members of Greece's ruling PASOK socialists, angered by his decision to call a plebiscite on the 130 billion euro rescue package agreed only last week, said Papandreou should make way for a "politically legitimate" administration.
Papandreou chaired a cabinet meeting, expanded to include more ministers after the referendum bombshell, where he was expected to fend off demands to call a snap election.
A leading PASOK lawmaker quit the party, narrowing Papandreou's already 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 implement the referendum. If any of the dissenters votes against it, it cannot be held. But the first hurdle for the government is a vote of confidence expected to be held by the end of the week.
"Papandreou is determined to go through with the referendum," a government official said. "He will not back down."
Euro zone leaders thrashed out Greece's second financial rescue since last year, in return for yet more austerity, in the hope that it would ease uncertainty surrounding the future of the 17-nation single currency.
Instead, financial markets suffered another bout of turmoil on Tuesday due to the new political uncertainty and the risk that austerity-weary Greeks could reject the bailout. Opinion polls suggest most voters think it is a bad deal.
The euro fell nearly three US cents and the risk premium on Italian bonds over safe-haven German Bunds hit a euro-lifetime high, raising Rome's borrowing costs to levels that proved unsustainable for Ireland and Portugal.
"The referendum is a bad idea with a bad timing. The post-summit rally is over," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
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 percent.