ATHENS, Greece — Greece was in turmoil and the world economy in limbo Thursday as a high-stakes game of political brinkmanship in Athens led Prime Minister George Papandreou to abandon his explosive plan to put a European rescue deal to a referendum.
The dramatic developments overshadowed the G20 summit of world leaders in the French resort of Cannes, where President Obama implored European leaders to swiftly work out a eurozone plan to deal with the continent's crisis, which threatens to push the world back into recession.
Papandreou sparked a global crisis this week when he announced plans to put the latest European deal to cut Greece's massive debt — a hard-fought accord that took months of negotiations — to a popular vote. The idea horrified other EU nations, Greece's creditors and financial markets as investors worried over the prospect that Greece could forced into a disorderly default.
Faced with mounting opposition at home and abroad, Papandreou withdrew the referendum call after the main opposition conservatives indicated they backed the debt deal. With them potentially on board, his finance minister argued, there was no longer a need to put the issue to the Greek people.
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Stocks rose sharply in the United States and Europe on news the referendum plan had been scrapped, as well as a surprise move by the European Central Bank to cut interest rates. The Dow Jones industrial average jumped 208 points, or 1.8 percent, to close above 12,000 for only the third time since early August.
But Papandreou's government was still in danger. The prime minister faces a crucial confidence vote in Parliament at midnight tonight, after two days of acrimony that saw many of his own lawmakers and ministers rebel. Many asked for his resignation, furious that his insistence on a referendum had endangered the debt deal and led European leaders to question Greece's treasured participation in the euro, the common currency used by 17 EU nations.