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Greek PM sticks with referendum on debt rescue package Greek PM sticks with referendum on debt rescue package
(40 minutes later)
  
Greek Prime Minister George Papandreou insists that a referendum on a EU bailout will go ahead despite turmoil on world markets and stunned reactions from other eurozone countries.Greek Prime Minister George Papandreou insists that a referendum on a EU bailout will go ahead despite turmoil on world markets and stunned reactions from other eurozone countries.
He told a Cabinet meeting a referendum would offer "a clear mandate" on Greece's staying in the euro.He told a Cabinet meeting a referendum would offer "a clear mandate" on Greece's staying in the euro.
But President Sarkozy of France said the decision "surprised all of Europe". Stock markets have recorded big drops.But President Sarkozy of France said the decision "surprised all of Europe". Stock markets have recorded big drops.
Mr Papandreou is due to meet European leaders in France on Wednesday.Mr Papandreou is due to meet European leaders in France on Wednesday.
The Greek prime minister held an emergency Cabinet meeting late on Tuesday.The Greek prime minister held an emergency Cabinet meeting late on Tuesday.
In a statement later released by his office and quoted by Reuters agency, he says: "The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro."In a statement later released by his office and quoted by Reuters agency, he says: "The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro."
Mr Papandreou said Greece's partners would support its policies.Mr Papandreou said Greece's partners would support its policies.
He also said a possible alternative of snap elections would risk Greece defaulting on its debt.He also said a possible alternative of snap elections would risk Greece defaulting on its debt.
The Greek government faces a crucial confidence vote in parliament on Friday.The Greek government faces a crucial confidence vote in parliament on Friday.
The surprise announcement of a referendum - to be held at a date yet to be decided - led to sharp falls on European and US markets on Tuesday.The surprise announcement of a referendum - to be held at a date yet to be decided - led to sharp falls on European and US markets on Tuesday.
It threatened to unravel a deal reached at a EU summit last week aimed at resolving the euro debt crisis.It threatened to unravel a deal reached at a EU summit last week aimed at resolving the euro debt crisis.
Leaders agreed on a 100bn-euro loan (£86bn; $140bn) to Athens and a 50% debt write-off.Leaders agreed on a 100bn-euro loan (£86bn; $140bn) to Athens and a 50% debt write-off.
But there have widespread protests in Greece against austerity measures demanded by the EU. But in return, Greece must make deep cuts in public spending, slashing pensions and wages and making thousands of civil servants redundant.
There have widespread protests in Greece against austerity measures demanded by the EU.
Bailout stands
Eurozone leaders insist that the bailout deal agreed for Greece last week still stands, despite the surprise plans for a referendum.
France and Germany said they wanted "the full implementation" of the agreement "in the quickest time frame".
George Papandreou will hold hastily arranged talks on Wednesday with French President Nicolas Sarkozy and German Chancellor Angela Merkel, on the sidelines of the G20 summit in Cannes.
In a joint statement, President Sarkozy and Chancellor Merkel said the decisions taken by last week's EU summit were "more necessary than ever".
"France and Germany are convinced that this agreement will allow Greece to return to sustainable growth," they said.
The US said Europe should act quickly to implement the bailout it had agreed.
"It remains the case that the Europeans have the capacity to deal with this crisis, and they need to implement the very important decisions they made last week to provide a conclusive resolution to it," White House spokesman Jay Carney said.
Last week's marathon EU summit was intended to rescue Greece and bringing the 17-nation eurozone back from the brink of disaster.
Eurozone chief Jean-Claude Juncker said if a referendum rejected the bailout, it could mean bankruptcy for Greece.
"It will depend on the manner in which the question will be exactly formulated and on what the Greeks exactly vote on," he said.
Confidence vote
Mr Papandreou said he needed the backing of a referendum to push through the tough reforms demanded by international lenders.
But some Greek government ministers had been unaware of the plan until it was announced. News of the referendum even took Greece's Finance Minister Evangelos Venizelos by surprise, Greek media reported.
The Greek government held late-night emergency talks to discuss the proposed referendum.
One MP from the governing Pasok party has resigned, cutting Mr Papandreou's parliament majority to two ahead of Friday's confidence vote.
Six other leading party members have called on him to resign.
The Greek opposition has called for early elections, saying the referendum jeopardises Greece's EU membership.
Antonis Samaras, leader of the main opposition New Democrats, said: "In order to save himself, Mr Papandreou has posed a dilemma of blackmail that puts our future and our position in Europe in danger."