The Greek government is facing possible collapse, with ruling party lawmakers demanding prime minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.
Caught unawares by his high-risk gamble, the leaders of France and Germany have summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.
The euro and global stocks have been pummeled on financial markets after the Greek move threw into question the survival of crucial efforts to contain the Eurozone's sovereign debt crisis.
Six senior members of Greece's ruling PASOK socialists, angered by his decision to call a plebiscite on the €130bn rescue package agreed only last week, said Papandreou should make way for "a politically legitimate" administration.
A leading PASOK lawmaker quit the party, narrowing Papandreou's already slim parliamentary majority, and two others said Greece needed a government of national unity followed by snap elections, which the opposition also demanded.
Eurozone leaders thrashed out Greece's second financial rescue since last year, in return for yet more austerity, in the hope that it would ease uncertainty surrounding the future of the 17-nation single currency.
Instead, financial markets have suffered another bout of turmoil due to the new political uncertainty and the risk that austerity-weary Greeks could reject the bailout. Opinion polls show most voters think it is a bad deal.
The euro fell nearly three cents against the dollar and the risk premium on Italian bonds over safe-haven German Bunds hit a euro lifetime high, raising Rome's borrowing costs to levels that proved unsustainable for Ireland and Portugal.
"The referendum is a bad idea with a bad timing. The post-summit rally is over," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
European bank shares dived on fears of a disorderly Greek default and the Athens Stock Exchange suffered its biggest daily drop since October 2008, with the general index shedding 7.7 per cent.
European politicians expressed incredulity and dismay at Papandreou's announcement on Monday evening that took everyone by surprise, including his own finance minister.
"Announcing something like this only days after the summit without consulting other Eurozone members is irresponsible," Slovak Finance Minister Ivan Miklos told Reuters.
Ireland's European affairs minister, Lucinda Creighton, whose own country is struggling through an EU/IMF bailout programme, said last week's European summit was meant to have dealt with the uncertainty in the euro zone.
"And this grenade is thrown in just a few short days later," Creighton said. "Legitimately there is going to be a lot of annoyance about it."
City A.M. Reporter