Greek Prime Minister George Papandreou called an unexpected referendum on Monday on the EU bailout deal for his debt-ridden country, a move that could necessitate a snap election if a public angry with austerity measures rejects the deal.

Pressured by his own lawmakers to share the heavy political burden of belt-tightening with other parties, Papandreou said he needed wider political support for the fiscal measures and structural reforms required by international lenders.

"We trust citizens, we believe in their judgment, we believe in their decision," he told ruling Socialist party deputies. "In a few weeks the (EU) agreement will be a new loan contract... we must spell out if we are accepting it or if we are rejecting it."

Analysts said holding a referendum was a baffling decision, given that the latest survey showed a majority of Greeks taking a negative view of the bailout deal.

Opposition parties reacted angrily, accusing Papandreou of looking for a way out for his embattled party by dragging Greece, which has seen violent clashes between protesters and riot police, through a lengthy period of political instability.

The euro extended losses against the dollar after the announcement, tumbling more than 2 percent to a session low.

Papandreou, grappling with Greece's worst financial crisis in 40 years, had discussed holding a referendum but many people were shocked at the prospect of weary, disgruntled citizens being asked to decide whether to accept or reject the bailout.

"Mr. Papandreou is dangerous, he tosses Greece's EU membership like a coin in the air," said conservative opposition New Democracy party spokesman Yannis Michelakis. "He cannot govern and instead of withdrawing honorably, he dynamites everything."

New Democracy leader Antonis Samaras will visit President Karolos Papoulias on Tuesday to discuss developments and push for snap elections, party officials said.

Weekend polls showed most Greeks took a negative view of the decision by euro zone leaders last week to hand cashed-strapped Athens a second, 130-billion-euro bailout and a 50-percent write-down on its enormous debt to make it sustainable.

"I never expected Papandreou to take such a dangerous and frivolous decision," said Dora Bakoyanni, former foreign minister and leader of the small centre-right Democratic Alliance party. "Tomorrow all the international media will say that Greece itself is putting the EU deal at risk."

Germany issued a statement saying the EU was working hard to put the second Greek aid package in place by the end of the year and had no comment on the referendum. EU leaders hammered out the deal last week, fearing the Greek debt crisis would spead to other euro zone countries and shake global markets.

"If there was to be a referendum, we may reasonably conclude that they may not accept the austerity measures. We may conclude that it will bring the pack of cards tumbling down," said Howard Wheeldon, senior strategist at BGC Partners in London.

Papandreou also said he would ask for a vote of confidence to secure support for his policy for the rest of his four-year term, which expires in 2013.

Analysts said he was likely to win that, despite dissent among his parliamentary team. He was forced to expel a senior party member for voting against part of his latest austerity package and others warned him it was the last time they would vote for measures they did not believe in.

Parliament officials said the confidence debate would begin on Wednesday, with a vote on Thursday or Friday.

 

LEGALITY QUESTIONED

Papandreou said the referendum would ask Greeks whether or not they agreed to the deal and would take place in a few weeks. Finance Minister Evangelos Venizelos told Greek TV it would probably be held early next year.

But parliamentarians questioned its legality under the constitution, which does not allow referendums on economic issues, only on matters of great national importance.

The last time Greeks held a referendum was in December 1974, when they voted to abolish the monarchy shortly after the collapse of a military dictatorship.

"It's debatable whether the constitution allows such a referendum," said Fotis Kouvelis, leader of the small Democratic Left party. "The country must go to early elections. Given the situation, it's the most honourable solution."

For a referendum result to be binding, there must be a minimum 40 percent turnout on issues of "crucial national importance" and 50 percent on a law that has already been voted on in parliament and "regulates a serious social issue", according to legislation enacted earlier this year. It was not clear which option the government would favour.

"If the referendum answer is no, Papandreou has to resign," said Costas Panagopoulos, an analyst at polling firm Alco.

"In the meantime what will happen with the decisions the EU took last week? I cannot understand what the prime minister wants to do. It could be the only way he has to leave the government, to share responsibility."

Nearly 60 percent of Greeks view Thursday's EU summit agreement on the new bailout package as negative or probably negative, a survey showed on Saturday.

Several lawmakers have defected from Papandreou's Socialist party over the packages of austerity measures enacted to qualify for bailout payments under last year's aid agreement, and the party trails in opinion polls.

New Democracy is rising fast in opinion polls, but no party would win outright if polls were held now, leading to coalition governments or repeated elections.

"The prime minister is obviously stuck in a dead end and he is leading the country down a very dangerous slope," said far right LAOS party MP Makis Voridis.