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Greek Cabinet Endorses Referendum Plan

A woman walks next to an electronic board recording the indicator of a session at the stock exchange in Athens on November 1.
Greece's government has given unanimous backing to a plan by Prime Minister George Papandreou to hold a referendum on a European Union debt-rescue package.

The controversial referendum is to be the focus of a meeting of European leaders on November 2 ahead of a Group of 20 (G20) summit in France.

Papandreou told an emergency cabinet meeting lasting late into the night of November 1 that a referendum would offer "a clear mandate" for austerity measures demanded by other members of the eurozone.

As the Greek government faces a crucial confidence vote in parliament on November 4, Papandreou said a possible alternative of snap elections would risk Athens defaulting on its debt.

Papandreou also said that market turmoil triggered by his October 31 announcement of the referendum would be short-lived.

After the meeting, government spokesman Elias Mossialos said the referendum would take place "right after the basics of the bailout deal are formulated."

Papandreou's shock announcement came just a week after eurozone leaders agreed to hand Athens a second, 130 billion-euro ($179 billion) bailout and a 50 percent writedown on its enormous debt.

In return, Greece must make deep cuts in public spending, slashing pensions and wages, and making thousands of civil servants redundant.

Crisis Talks

There have been widespread protests in Greece against the measures intended to rescue Greece and bring the 17-nation eurozone back from the brink of fiscal disaster.

Papandreou is to hold crisis talks on November 2 with French President Nicolas Sarkozy and German Chancellor Angela Merkel in Cannes, on the eve of the opening of a summit of the G20.

EU and International Monetary Fund officials are also expected to attend the meeting.

The French and German governments said they wanted "full implementation" of the agreement "in the quickest time frame."

In a joint statement, Sarkozy and Merkel said the decisions made by last week's EU summit were "more necessary than ever," saying it would "allow Greece to return to sustainable growth."

Amid shocked reactions in eurozone capitals to the referendum announcement, Sarkozy urged Greece to accept the deal.

"Giving the people a say is always legitimate," he said. "But the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts."

Luxembourg Prime Minister Jean-Claude Juncker, who heads the group that brings together the eurozone's finance ministers, said that if a referendum rejected the bailout, it could mean bankruptcy for Greece.

Greek Government Could Fall

Meanwhile, the referendum announcement triggered big drops on world markets on November 1 amid fears that the eurozone is in jeopardy, while the value of the euro slumped against the dollar.

Greek officials have suggested the referendum would probably be held in January, but the interior minister said it could happen as early as December, if details of the bailout agreement are nailed down earlier than envisaged.

But it was unclear if Papandreou's government would survive long enough for the vote to take place.

One lawmaker from the ruling Socialist Party defected, reducing the government's parliamentary majority to just two seats ahead of the confidence vote on November 4.

Another Socialist deputy has threatened to defect if the government goes ahead with the referendum plan, while six party members have called for Papandreou to go.

The Greek opposition has called for early elections, saying the referendum jeopardizes Greece's EU membership.

If the government fails to survive the vote, the planned referendum would be scrapped, although implementing the conditions to receive the bailout money could still be delayed.

If the referendum proceeds and the Greek public votes against the bailout, analysts say Greece's membership in the eurozone would be jeopardized, a messy debt default could result, and global banks and markets would be hard-hit.

compiled from agency reports