Greek Prime Minister George Papandreou plans to put last week's European Union (EU) bailout package to a vote. He has reignited concerns that a Greek default is unavoidable.

At the heart of the surprise referendum is the deal the EU put together last week that revised the bailout amount originally agreed on earlier this year, to €130 billion from €109 billion.

The EU-International Monetary Fund multi-annual program will alot €100 billion to Greece and the remaining amount will be used to contribute to private sector involvement (PSI).

According to analysts at Barclays Capital, the PSI in the Greek bailout has agreed to a 50% haircut on Greek debt.

"Our economists refer to news reports indicating that the PSI targets a total debt volume of €205 billion, implying that a 50% haircut should result in €102.5 billion in debt relief for Greece via a debt exchange with details yet to be announced," Barclays analysts said.

However, the Greek referendum means the drastic deal isn't likely to go through, according to market reports.

"The Greek PM may have played a blinder for his country, but it is bad for the rest of us," Societe Generale analysts said. "The Troika will be seething. The pressure will surely be intense on other troubled eurozone countries to go to the people as well."

On the back of the announcement markets around Europe took a dive. The FTSE 100 in London was down 3.0%, while the DAX in Frankfurt fell 5.2% and the CAC 40 in Paris dropped 4.5%.

Shares in European banks were the biggest casualties this morning, with Credit Agricole down 11.5%, SG falling 14.4%, BNP Paribas down 10.5% and Barclays 9.3% lower.

“The fall in the markets are mainly due to the concern around whether voters would accept the austerity measures suggested," said John Dowthwaite, CEO of SimplyStockbroking. "If Greece were to reject the deal then it would result in immediate national bankruptcy; in turn causing economic instability across Europe. The current fluctuations in the market will continue until there is some form of clarity from pan European government.”

It's likely that Greece's latest move will now keep the market nervous through to yearend in what promises to be a broadly risk-off environment, according to SocGen analysts.

"The EU leaders deserve credit for recognizing that a far greater and more substantial plan was needed to show the markets that the extent and depth of the crisis and specifically the challenges facing Greece were understood," said James Frischling, president and co-founder at NewOak Capital. "The far harsher restructuring of Greek debt had been something that was brewing and whether it's truly voluntary or not, it was necessary. The markets positive reaction to the agreement will be short lived if the execution of the plan doesn't materialize soon. With this latest agreement, the EU has now shown that they too have a bazooka in its arsenal, the question now is whether they have the resolve to use it."

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