11/01/2011 07:58 EDT | Updated 01/01/2012 05:12 EST

Governing party deputy defects over referendum, Socialists down to 2 seat majority

ATHENS, Greece - Two Socialist lawmakers revolted Tuesday over their prime minister's shocking decision to hold a referendum on the European debt deal, with one defecting from the governing party and another openly calling for an early election.

Lawmaker Milena Apostolaki broke away from the party to declare herself an independent, leaving the Socialists with a razor-thin majority of two seats in the 300-member legislature.

Prime Minister George Papandreou's unexpected decision late Monday led to markets plunging Tuesday on fears that Europe's plan to save the euro will unravel. He has not set a specific question, or a date, for the referendum, although ministers said it is expected to be held early next year. He has also called a confidence vote in his government on Friday.

This would be the first referendum to be held in Greece since 1974, when Greeks were called on to decide whether they wanted to keep the monarchy after the fall of a seven-year dictatorship.

Under a new law passed just last month, a referendum can be called on issues of great national importance. But many have questioned Papandreou's decision to call one on the new debt deal, when he did not ask for a plebescite for Greece's first international bailout last year.

The move allows the Socialists — who have been vilified by an increasingly hostile public during months of strikes, sit-ins and violent protests over rounds of austerity measures — to pass the responsibility for the country's fate onto the Greek people themselves.

In a sign of deepening political turmoil, another prominent Socialist deputy, Vasso Papandreou, called on the country's president to convene the heads of all political parties to create a cross-party government in order to safeguard the European debt deal. As soon as that is done, she said, early elections should be held.

"The country is in danger of immediate bankruptcy," Vasso Papandreou, who is not related to the prime minister, told reporters outside parliament.

The move was greeted with shock from markets and analysts alike.

Papandreou's plan to hold a referendum "dramatically raises the stakes for Greece and the eurozone as a whole," the Fitch ratings agency said.

A rejection of the new deal hammered out in Brussels last week "would increase the risk of a forced and disorderly sovereign default and ... potentially a Greek exit from the euro," Fitch said. "Both of which would have severe financial implications for the financial stability and viability of the eurozone."

Greek opposition leaders who have vehemently refused to back the government's rounds of austerity measures called the move a political ploy by Papandreou.

"In his attempt to save himself, Mr. Papandreou set a divisive, blackmailing dilemma that endangers our future and our position in Europe," conservative New Democracy party leader Antonis Samaras said.