Papaandreou told an emergency cabinet meeting that a possible December would offer “a clear mandate” for austerity measures demanded by Greeces’s eurozone partners.

Stock markets recorded huge drops in eurozone capitals in reponse to the controversial announcement, after it threw into question the survival of crucial efforts to contain the eurozone’s sovereign debt crisis.

The leaders of France and Germany have summoned Papandreou to crisis talks in Cannes today to push for a quick implementation of Greece’s new bailout deal before a summit of the G20 major world economies.
In a cabinet meeting, which lasted late into last night, Mr Papandreou told ministers the government needed the consent of the Greek people.

In a statement released by his office, he said: “The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro.”

Mr Papandreou also said a possible alternative of snap elections would risk Greece defaulting on its debt.

The Greek government faces a crucial confidence vote in parliament on Friday.

One MP from the governing Pasok party has resigned, cutting Mr Papandreou’s parliamentary majority to two – and six other leading party members have called on him to resign.