Greece throws euro bailout into fresh crisis

The Greek prime minister, George Papandreou, stunned Europe's leaders on Monday after he proposed that his country should hold a referendum on the landmark European debt deal reached last week.

A Greek vote against the deal could scupper weeks of negotiations over how to rescue the country's economy and prevent a debt crisis to match the Lehman Brothers crash of three years ago.

Stock markets, which have rallied in recent weeks after a sustainable deal looked more likely, reacted immediately to the news with a sell-off of shares. In New York, the Dow Jones index of leading companies fell sharply as Papandreou's plan was revealed. The euro fell 2% against the dollar and the US Volatility index – the so-called "index of fear" – climbed 22%, its biggest one-day rise since mid-August.

Papandreou gave no date or other details of the proposed referendum, though the interior minister, Haris Kastinidis, said it would most likely be in January.

Last week, under intense pressure from global leaders fearful of the repercussions of Europe's mounting debt crisis, eurozone members agreed to cut Athens's debts by 50% and provide €130bn (£112bn) in additional rescue loans to supplement a bailout fund put together with the International Monetary Fund last year.

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