Despite causing turmoil on world markets and the shocked reaction from other European states, George Papandreou has won the support of the cabinet after an emergency meeting in which he said the move would pave the way for Greece staying in the euro.
The Greek prime minister is now expected to hold talks with President Nicolas Sarkozy and Chancellor Angela Merkel on Wednesday. But while the Greek PM has found political support for the highly unpopular deal, critics argue he is putting both his country’s and Europe’s futures on the line.
A Greek deputy’s defection from the ruling party is only the latest consequence of Prime Minister George Papandreou’s decision to hold a surprise referendum on last week’s Greek bailout package.
Milena Apostolaki's move, which leaves the governing socialist party with a slim two-seat majority, highlights the risky game Papandreou is playing with Greece’s financial future.
Struggling with rioters at home and growing dissent from within his own political party, Papandreou’s populist maneuver has cast a dark cloud over the eurozone’s future.
While the country is due to receive an 8 billion-euro tranche in mid-November, it is likely to run out by January, just in time for the referendum, leaving the government with no funds if there is a "no" vote, Reuters reports.
And while Greece is desperately in need of the 130 billion-euro lifeline and a 50-per cent write-down on its enormous debt (which would amount to an additional 100 billion euros), more austerity measures are a pill that many find too bitter to swallow.
This reality is reflected by recent opinion polls which show some 60 per cent of Greeks view the bailout in a negative light.
However, the majority also want to stay within the euro, an ambivalence which has created obvious frustration within the Greek government.
“I can no longer look at polls where the majority is against the agreement, the majority is against the program, but a majority is also in favor of staying in the euro,” Evangelos Venizelos, the Greek finance minister, said on Monday, as cited by The Telegraph.
And as the prime minister attempts to placate both members within his own party and the majority of Greek citizens who have baulked at a series of austerity measures, critics claim he is attempting to wriggle out of an agreement he would willingly have agreed to only a week ago.
The referendum has prompted France and Germany to announce that members of the International Monetary Fund and the eurozone will meet Wednesday to discuss new ways to implement the Greek rescue package, the Associated Press reports.
Talks will also be held with the Greek government in the run-up to the G-20 summit, which will be held in Cannes on Thursday and Friday.
As global stock markets dropped across the board and European stocks down fell by close to 3 per cent, fears continue to grow that Italy and Spain might be headed down the same path.
The move has reverberated so negatively throughout Europe that Alexander Stubb, the Finnish minister for European affairs and foreign trade, has gone so far as to call Greece’s future use of the euro into question.
"The situation is so tight that basically it would be a vote over their euro membership," he said during an interview with Finnish broadcaster MTV3, as cited by Reuters News agency.
Beyond that, a “no” vote could easily result in Greece going bust.
The decision has also left G20 leaders with egg on their faces, as they prepare to meet in France later this week in an attempt to secure their own financial lifeline courtesy of the Chinese.
As many analysts and policy makers have recognized that a “no” vote on the referendum would spell the end of Papandreou, he has raised the ante by asking for a confidence vote in order to garner support for the remainder of his term, which is set to finish up in 2013.
However, others within the domestic political opposition are calling for snap elections, as many believe Papandreou has risked gambling away the country’s future for short-term political gains.