Chaos: European markets dive after Greek PM calls for referendum on bailout

German Chancellor Angela Merkel is due to discuss the Greek announcement with French President Nicolas Sarkozy on the telephone.

Italian Prime Minister Silvio Berlusconi said it was “an unexpected decision that generates uncertainties”…

Opinion polls in Greece suggest that most people do not support the deal and there have been demonstrations against the austerity measures across the country, some of them violent.

Mr Papandreou told a meeting of his governing Socialist party on Monday that Greek people would have the final say on the austerity package, which is designed to reduce Greek debt by about 100bn euros through a series of measures including public sector pay cuts, tax rises and falling pensions.

The austerity measures are a condition of the bailout packages from the European Union and International Monetary Fund.