The country will now go to the polls in a referendum on 4 December, but it is not yet clear whether it will vote on its latest €100bn bailout package and the attached conditions, or on membership of the euro itself.
Last night, it was clear that Germany and France would prefer a vote on the latter.
In a decisive shift in tone, German Chancellor Angela Merkel said that Greece must make its own decision on membership, but that her priority is now to defend the single currency “with or without Greece”.
Her remarks, at a press conference with France’s Nicolas Sarkozy, were the first admission that any country could leave the euro, which will send a chill down investors’ spines. There is no mechanism for a state to exit.
Greek Prime Minister George Papandreou secured cabinet support for his referendum and defended it, saying: “It’s [Greece’s] democratic right and the Greek people I believe are mature and wise to make the decision.”
European Commission boss José Manuel Barroso threatened to cut off the next €8bn (£6.9bn) tranche of previously agreed bailouts until the country agrees to support the new package.
Greece claims that it can survive until December without the funds, after which it will go bankrupt.