2 Nov 2011

Greek Cabinet backs PM on euro zone package

10:06 pm on 2 November 2011

The Greek cabinet has given unanimous backing to Prime Minister George Papandreou's proposal to hold a referendum on last week's European Union aid package.

The decision to hold the referendum shocked political leaders and surprised Greek parliamentarians, prompting the cabinet to hold the late night vote.

Sharemarkets were thrown into a panic when Mr Papandreou announced he would allow Greeks to vote on the €130 billion bailout.

The package was agreed last week by euro zone leaders and includes a 50% debt write-off for Greece.

European shares suffered their biggest one-day loss in a month on the back of Mr Papandreou's announcement.

Traders fear Greek voters could reject more austerity measures, throwing into doubt the wider euro zone bailout plan.

Shares in Greek, Italian and French lenders, which have big exposure to euro zone debt, had the biggest falls.

Mr Papandreou's announcement of a referendum took even the Greek finance minister by surprise, the BBC reports.

Six members of the ruling Socialist party have called for the leader to resign and some have called for an early election.

One member of the party has quit, reducing the Prime Minister's majority to just two seats ahead of a crucial vote of confidence at the weekend.

The Greek interior minister says the planned referendum may be brought forward to December if details of the bailout agreement are worked out earlier than planned.

Mr Papandreou is to meet later on Wednesday with the leaders of Germany and France, along with the International Monetary Fund and euro zone leaders to assure them he will win the referendum.

The Greek prime minister will tell the other leaders that a referendum is the only way to overcome the resistance to an unpopular plan that includes spending cuts and tax increases.

The Greek people will be told that a "no vote" would lead to default, bankruptcy and chaos.