Greek cabinet backs debt crisis referendum

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Greek Prime Minister George Papandreou secured the unanimous backing of his cabinet for a referendum on the eurozone debt rescue plan, government spokesman Elias Mossialos said on early Wednesday.

The cabinet also approved Papandreou's decision to hold a parliamentary vote of confidence on his government, Mossialos told reporters.

Several socialist deputies had already denounced the referendum plan on Tuesday, with one member quitting the parliamentary group to fight it.

That defection left the socialists with just 152 deputies in the 300-seat parliament, suggesting that the outcome of Friday's confidence vote was far from a foregone conclusion.

At the emergency cabinet meeting called on late Tuesday, Papandreou had insisted on the need for a referendum.

"The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership," he said.

Explaining his opposition to calls for an early election, he argued that 'everything would stop' in an election campaign and the country would ‘be dragged to a risk of bankruptcy’.

Papandreou added that his EU peers ‘had been advised’ of his plans ‘and will respect and support’ the country's efforts.

Earlier on Tuesday, Defence Minister Panos Beglitis backed the referendum.

"The Greek people must assume their responsibilities on how they want the country to continue its course and exit from the crisis," he told private Skai radio.

During trading on Tuesday, Greek stocks plunged 6.92 per cent in response to Papandreou's surprise referendum announcement late the previous day.

Adding to the chaos, Greece's foreign minister cancelled meetings with three foreign ambassadors, while Finance Minister Evangelos Venizelos was hospitalised with an inflamed appendix.

The semi-state Athens News Agency said Venizelos had made a flurry of phone calls to senior players at the European Commission and the International Monetary Fund as well as to his German counterpart Wolfgang Schaeuble.

On Wednesday Papandreou is due in French resort town of Cannes to face G20 leaders at their summit Thursday and Friday.

He will attend a working dinner with host Nicolas Sarkozy of France and German Chancellor Angela Merkel.

Also present will be EU president Herman Van Rompuy, EU commission chief Jose Manuel Barroso, eurozone chief Jean-Claude Juncker, new ECB chief Mario Draghi and IMF managing director Christine Lagarde, Papandreou's office said.

In a phone call with Merkel Tuesday, Papandreou insisted the referendum would strengthen Greece in the eurozone and globally, his office said.

But on Tuesday former deputy minister Milena Apostolaki quit the socialist parliamentary group, saying she would keep her seat to fight the referendum plan.

"I have an obligation to resist this erroneous political choice that divides the nation," she said in a statement.

Vasso Papandreou, head of the parliamentary economic affairs committee, then called for early elections and a temporary unity government to "safeguard" last week's eurozone deal to slash Greece's huge debt.

"The country is threatened by imminent bankruptcy," said Vasso Papandreou -- no relation to the prime minister.

Another socialist deputy, Eva Kaili, threatened to defect if the government persisted with the referendum plan, and a statement from six socialist party members also called on the premier to resign.

Many analysts have warned that early elections would fail to produce a strong majority in parliament and would plunge the country into political uncertainty. Papandreou's term ends in 2013.

But with leaders of the world's 20 biggest economies getting ready for the Cannes summit which is focused on the economic crisis, Papandreou's unexpected move has triggered fears the rescue efforts could rapidly unravel.

He has faced increasing dissent within his own party over the tough austerity policies required by the EU and the IMF, which have sparked general strikes and sometimes violent street protests.

Although the EU deal agreed last Thursday included an agreement to write off 100 billion euros ($137 billion) of debt owed by Greece, Athens still has to implement a painful package of austerity measures in return.

Also Tuesday, a state security council chaired by Papandreou replaced the heads of the general staff, the army, navy and airforce.

A defence ministry source insisted the reshuffle had been previously planned and was not linked to the political turmoil.