Merkel and Sarkozy tell Greece: ‘Decide soon’

But the German and French leaders did not wait for their planned meeting with Greek Prime Minister in Cannes to tell the Greek PM by phone that his referendum would decide whether Greece stays in the EU, according to Channel 4 News Political Editor Gary Gibbon.

They issued their demands over the phone. It seems like the EU is saying; “You can have your referendum if you must, but do it as quickly as possible – and we choose the question.”

Greeks, the EU is saying, should be asked not “Do you back the painful bailout deal?” but “Do you want to stay in the EU and the euro – yes or no?”

Read more: Do your referendum quickly, Sarkozy and Merkel tell Greece

Despite facing criticism from within his own party, Greek Prime Minister George Papandreou won his cabinet’s backing last night for a referendum on an EU debt bailout deal which, the government said, would take place as soon as possible.

The cabinet support gives Mr Papandreou a stay of execution until a confidence vote in parliament on Friday.

The French Prime Minister Francois Fillon told parliament earlier today: “Europe cannot be kept waiting for weeks for the outcome of the referendum. The Greeks must say quickly and without ambiguity whether they choose to keep their place in the euro zone or not.”

We agreed a plan for Greece last week. We want to put this plan into action . Angela Merkel

US and European stocks rose, along with the euro on Wednesday after yesterday’s steep sell-off over fears that the Greek referendum on its bailout package could push the country into default.

That move pummelled the euro and global stocks on Tuesday.

“This announcement took the whole of Europe by surprise,” French President Nicolas Sarkozy said in a rare televised address on the steps of the Elysee palace in Paris yesterday. “The plan… is the only way to solve Greece’s debt problem.”

Markets fell across the globe on the shock news of the referendum amid fears Mr Papandreou’s government was close to collapse.