But it was unclear if Papandreou's government would last long enough for the referendum to take place — or even last until Friday's confidence vote.
Several Socialist lawmakers openly rebelled, with one going as far as defecting. Milena Apostolaki's departure whittled Papandreou's parliamentary majority to 152 seats in the 300-member legislature.
Her departure “shows clearly that the government itself is losing gradually its cohesion,” said George Tzogopoulos, a political analyst from the Hellenic Foundation for European and Foreign Policy. “(It) will not be able to remain in power for many days.”
He expected Papandreou, whose term ends in 2013, to call an early election “very soon.”
Many wondered why Papandreou decided to call for a vote on this debt deal when he did not ask for one last year when Greece got its first bailout.
“Yesterday's surprise and irrational announcement of the referendum has led me to doubt something that I considered certain until yesterday: That I am a member of a group that is striving to save our country from bankruptcy,” Socialist deputy Hara Kefalidou wrote in a letter to Papandreou. “I cannot back a referendum which is a subterfuge by a government that appears unwilling to govern.”
The horrified reaction in Greece and across Europe reflected anger that Papandreou's move — if a referendum is eventually held — could overturn a deal which took months and months of work.
The marathon European negotiations produced a deal which aims to seek 50 percent losses for private holders of Greek bonds and provide the troubled eurozone member with (euro) 100 billion ($140 billion) in additional rescue loans — little more than a year after Greece became reliant on another (euro) 110 billion ($150 billion) bailout from the eurozone and the International Monetary Fund. But negotiations with the banks on the details have still not been finalized.
A ‘no' vote could cause a disorderly debt default in Athens that would cause bank failures across Europe, new recessions in the developed world and see Greece leave the common euro currency. It could also pose new dangers for larger troubled economies like Italy and Spain.
Jean-Claude Juncker, who chairs eurozone ministerial meetings, said the referendum was a dangerous decision that could endanger Greece's next bailout loan of (euro) 8 billion ((euro) 11 billion) that was being sent within days. Athens runs out of money to pay pensions and salaries by mid-November and faces bond redemptions in December.
It was not only international leaders who were taken by surprise.
Venizelos, Papandreou's own finance minister, had also been left in the dark, an official close to the minister told the AP.
Venizelos “found out about it along with all other Greeks” during Papandreou's speech, which was televised live Monday, he said. The official spoke on condition of anonymity to discuss sensitive details.
From his hospital bed, Venizelos launched a telephone marathon to shore up international support for the debt deal, speaking with German Finance Minister Wolfgang Schaeuble, Deutsche Bank chief executive Josef Ackermann, EU's Monetary Affairs Commissioner Olli Rehn, Poul Thomsen, the International Monetary Fund's mission chief for Greece, and Charles Dallara from the global banking lobby that negotiated the debt reduction deal.
Associated Press writers Derek Gatopoulos and Nicholas Paphitis, and APTN producer Ted Tongas in Athens, Angela Charlton in Paris, Raf Casert in Brussels and David McHugh in Berlin contributed.