Greek cabinet backs bailout referendum

Greek Prime Minister George Papandreou has called for a referendum on the EU bailout deal and a vote of confidence on his government.

ATHENS (CNN) -- Greece's cabinet voted Wednesday to support Prime Minister George Papandreou's call to hold a referendum as soon as possible about the latest bailout plan, ministers coming out of the meeting told a CNN affiliate.

The vote was unanimous, though some of the ministers expressed criticism prior to casting their votes, CNN affiliate Mega Channel reported.

The cabinet vote came hours before German Chancellor Angela Merkel, French President Nicolas Sarkozy and senior figures from the International Monetary Fund and European Union were to meet Wednesday with Greek officials at an emergency meeting in Cannes, France, ahead of the G-20 summit.

Their meeting comes a day after U.S. and European stock markets tumbled after Papandreou's call for the referendum on international aid for his country.

Papandreou is seeking public backing from the Greek people for last week's bailout deal, which took months to reach.

But the move created turmoil in domestic politics, with Papandreou forced to hold an emergency Cabinet meeting late Tuesday, and angered his European counterparts.

Europe's Debt Crisis

A "no" vote could theoretically force Greece to crash out of the euro and send shock waves through the global financial system.

Greek Foreign Minister Stavros Lambridinis told CNN he was confident the Greek people would vote "yes," and that they were "fanatic supporters" of Europe.

"Everyone is getting a bit tired of doubting the wisdom of the Greek people and their commitment to Europe," he said, adding that Greece had proven its dedication in the painful measures it has already taken.

Lambridinis said he hoped the referendum would take place as soon as the details of the bailout deal agreed to last week were finalized.

Several of the most senior military leaders in Greece, meanwhile, have been replaced.

Greek default fears return

The Government Council for Foreign Affairs and Defense, which Papandreou chairs, decided on "sweeping changes in the armed forces' leadership" on Tuesday, the Athens News Agency reported.

The council replaced the general staff chiefs for the Greek Army, Navy and Air Force, the news agency said. The news agency did not cite a reason for the changes.

The announcement of the referendum rattled Papandreou's hold on power, as a lawmaker defected from his party, leaving him with a majority of only two in Parliament.

Milena Apostolaki, who was an influential figure in the party, said Papandreou had made "an erroneous political decision" in calling for the referendum.

"It jeopardizes the efforts and the painful sacrifices that are made by the Greek people," she told CNN Wednesday. "It would set high risk on the European perspective of the country and also divides the nation, and that's why I believe in these extremely difficult days we only have to contain the crisis and to make all the sacrifices of the Greek people worthwhile. That must be the one and only priority."

The prime minister has called a confidence vote, separate to the referendum on the bailout deal, for Friday.

Sarkozy and Merkel issued a terse statement on 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."

White House spokesman Jay Carney struck a similar note, saying Papandreou's move reinforced the need for Europe "to elaborate further and implement rapidly the decisions they made last week."

Greece's former deputy finance minister, Petros Doukas, a member of the opposition New Democracy Party who is not currently in office, told CNN he doubted the referendum would take place.

Europe's biggest baby step

Papandreou is under enormous pressure from Europe, the markets and opposition forces within Greece to backtrack on the proposal, Doukas said. He described Papandreou's actions as a political gamble that had gone wrong, with the prime minister having tried to make the opposition parties share the pain of unpopular reforms.

He suggested Papandreou would have to call elections or stand down as leader, as Greece was "not governable" with him as prime minister. Greece's opposition leader, Antonis Samaras, called Tuesday for a snap election, but it is unlikely he has the votes to force one.

Elena Panaritis, a fellow PASOK lawmaker who advises Papandreou on economics, said she would support Papandreou's confidence vote, saying the prime minister had been under heavy political pressure from inside and outside his party.

International lenders are demanding that Athens raise taxes, sell off state-owned companies and slash government spending, which would mean firing tens of thousands of state workers.

The Institute of International Finance, a global association representing many of the world's biggest banks, reaffirmed its commitment Tuesday to the bailout agreement reached last week, saying it would work closely with all parties to implement it.

The European debt crisis claimed its first American victim shortly before Papandreou announced the referendum on Monday, as MF Global (MFGLQ) filed for bankruptcy protection, leaving top Wall Street creditors holding more than $2 billion in debt.

The commodities and derivatives brokerage was run by ex-Sen. Jon Corzine, a former head of Goldman Sachs (GS, Fortune 500). Constantine Michalos, chairman of the Athens Chamber of Commerce, said Papandreou's referendum move had taken everyone by surprise.

As a consequence, he said, "Greece is facing a credibility gap as a result of the problems that have been created both on a political level and on a financial market level."

Michalos also said he saw little point in Papandreou holding a confidence vote this week if the bailout deal, which was reached after top-level negotiations in Europe, could be overturned by the Greek people just a few weeks later.

The planned referendum casts a shadow on the hard-fought deal that would allow Greece to write off as much as 50% of its debts to banks.

The agreement for private lenders to scrap half of Greece's debt is worth €100 billion to Athens, and comes with a promise of 30 billion euros from the public sector to help pay off some of the remaining debts, making the whole deal worth €130 billion euros.

No date has been set on the vote, although local news reports say the referendum could come in January.