Greek Prime Minister George Papandreou has called for a referendum on the EU bail-out deal and a vote of confidence on his government.
ATHENS (CNN) -- Greece Prime Minister George Papandreou announced Monday a national referendum to approve the bailout deal reached at last week's EU summit.
A "No" vote could theoretically force Greece to crash out of the euro and send shock waves through the global financial system.
The surprise move casts a shadow on the European Union debt deal that would allow as much as 50% of the nation's loan payments be reduced, in exchange for new €130 billion in aid to finance Greece's ballooning debt.
But French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a terse statement Tuesday saying they were "determined to ensure the full implementation, without delay, of decisions adopted by the summit, which are necessary now more than ever."
The agreement would see the country's sky-high debts cut in half, but it comes with strings attached which have led to angry demonstrations in the streets of Greece.
International lenders are demanding that Athens raise taxes, sell off state-owned companies, and slash government spending -- which means firing tens of thousands of state workers.
No date has been set on the vote, although local press reports say the referendum could come in January. A Dow Jones Newswires report on Tuesday afternoon cited a Greek Socialist Party official saying the referendum is "basically dead," meaning that the referendum may not happen after all.
The announcement of the referendum rattled Papandreou's hold on power Tuesday, as a lawmaker defected from his party, leaving him with a majority of only two in Parliament.
Milena Apostolaki announced her resignation from the PASOK party, saying the call for a referendum was "a deeply divisive procedure."
The European debt crisis claimed its first American victim shortly before Papandreou announced the referendum on Monday, as MF Global filed for bankruptcy protection, leaving top Wall Street creditors holding more than $2 billion in debt.
The commodities and derivatives broker was run by ex-Sen. Jon Corzine, a former head of Goldman Sachs (Fortune 500). Greece's opposition leader Antonis Samaras called for snap elections Tuesday, but it is unlikely he has the votes to force one.,
Papandreou has called for a vote of confidence later this week, separate from his call for a referendum on the international bailout.
One expert called the surprise plan for a referendum "a political gamble which adds further uncertainty to the European debt crisis."
"The prime minister will be hoping for a vote in favor to strengthen his mandate, but if the Greek population votes against, it will leave the IMF and Greece's European partners in a very difficult situation," said Gary Jenkins of Evolution Securities.
A weekend survey in Greece found nearly 60% opposed the debt deal reached in Brussels last week.
"Clearly [this] opens a can of worms, because the referendum vote could go one of two ways," said Frederic Neumann, a senior economist for HSBC.
"If approved, a vote of confidence in government's handling of the situation ... if calmer heads prevail and it can rationally be explained to the public, I wouldn't discount the measure being approved.
"The problems for the markets, until the referendum is passed, there is added uncertainty. That's just an added headache."
Besides the Greek debt reduction plan, last week's EU deal pledged to quadruple the EU's bailout fund to about $1.38 trillion, and raise the capital required to help cushion the region's banks from financial shocks.
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