The Greek prime minister announced the decision in Cannes after Angela Merkel and Nicolas Sarkozy gave him an ultimatum that Greece had to “abide by the rules” of the Brussels bail-out agreement – “or leave the eurozone”.
Mr Papandreou said that that “being part of the eurozone means having many rights and also obligations”. He said that the debt crisis deal agreed in Brussels a week ago would be “difficult” for Greece and while he “hoped for a yes vote” he wanted the “Greek people to speak”.
He added: "I believe in benefits for growth, lowering our burden of debt, a strong package of support for the next few years. We can put our house in order and make a viable economy. It is important that the Greek people make decisions on important developments. They are, I believe, mature and wise enough to make this decision.
"We're very proud to be part of the eurozone. But this comes with obligations and it is crucial we show the world we can live up to those obligations.
"We could hold the referndum on December 4. A positive decision by the Greek people is not only positive for Greece but for Europe. The Greek people want us to be in eurozone - I want them to speak and they will speak soon>"
Mr Sarkozy said that European leaders were powerless to stop Greece holding a referendum but he said the bail-out agreement was conditional “according to certain rules”. He said it was “up to them whether they accept the rules or not”.
MS Merkel added that they would "not not abandon the principles of democracy. We cannot put at stake the great work of the unification of the euro."
"The referendum is a question of whether Greece wants to be in eurozone with the euro currency - that is the issue," she said.
The German Chancellor and French President, who summoned Mr Papandreou to crisis talks ahead of the G20 meeting in Cannes that starts on Thursday, to tell him that the debt restructuring and austerity measures agreed a week ago were not negotiable. The leaders threatened to withhold €8bn (£6.9bn) of international aid from Greece until Athens accepted the terms.
Mr Papandreou’s refusal to bow to their pressure is likely to rattled global markets.
Hours before the Cannes talks, the European Financial Stability Facility (EFSF) was forced to pull an auction to raise €3bn of debt because investors felt uncertain about the terms. It was an inauspicious start for the vital bail-out fund which is supposed to be capable of raising up to €1trillion.
The Italian cabinet held an emergency meeting in a bid to agree economic reforms which Silvio Berlusconi promised as part of the Brussels deal. As the cost of insuring Italian debt against default remained at record highs of 6.1pc, Giorgio Napolitano, the Italian president, appeared to threatened to bring down the government if the reforms were not agreed. Ignazio Visco, the new head of the Bank of Italy, urged Mr Berlusconi to mee the demands. He said it was “necessary to proceed resolutely” in order to achieve “the lasting reduction of sovereign risk and preserve the stability of the financial system”.
Mr Sarkozy had a “working dinner” in Cannes with President Hu Jintao as part of his on-going efforts to attract Chinese investment in eurozone debt.
Meanwhile, rumours swept the markets that France could lose its AAA credit rating after economic data revealed that the eurozone economies are stagnating.
Even so global stockmarkets were calmer following the rout on Tuesday. The Stoxx Europe 600 clawed up 0.9pc, in Germany the DAX gained 2.3pc, in France the CAC rose 1.4pc and in London the FTSE 100 added 1.2pc.
Francois Fillon, the French prime minister, said: “Europe cannot be kept waiting for weeks for the outcome of the referendum. The Greeks must say, rapidly and unambiguously, whether or not they will choose to remain in the eurozone.”
The Telegraph
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