Greek referendum: What happens next?

Greek Prime Minister George Papandreou’s announcement of a referendum on the new eurozone debt deal has shocked European markets and thrown the future of the euro back into disarray.

Papandreou’s surprise pledge to Greek lawmakers on Monday night came less than a week after the landmark EU summit seemingly put the bricks in place for the economic salvation of the continent.

Q: Why did Papandreou announce the referendum now?

Greece’s government has realized that it doesn’t actually have the public support needed to implement the austerity measures required by the new EU bailout deal agreed last week, according to journalist Elinda Labropoulou.

There has been public unrest, unions are threatening further strikes, and a weekend survey found 60% of Greeks do not approve of the terms of the new bailout.

In the face of mounting opposition and further threats of nationwide strikes, the government is calling a referendum to be held as early as January to settle the matter publicly.

“The new measures must be approved by parliament and the Greek people,” Finance Minister Evangelos Venizelos said. “Citizens are confused … that is why the referendum is necessary.”

Q: What was the deal agreed to by European leaders last week?

In addition to recapitalizing Europe’s banks and bolstering the European Financial Stability Facility, the deal meant Greek bondholders would take a 50% “haircut” or write-down on Greek debt – saving the country €100 billion and bringing their debt-to-GDP ratio to a manageable level by 2020.

In order for bondholders to accept the deal, however, the Greek government agreed to implement harsh austerity measures that would involve cutting public benefits and tens of thousands of public sector jobs – a decision that will now apparently be left in the hands of Greek voters.

Papandreou also asked for a vote of confidence this week in his beleaguered socialist government – a vote he is expected to win, said Labropoulou.

“He has enough support within parliament to guarantee that the vote will go through, so this is not the one for him to worry about,” Labropoulou told CNN.

Q: What will the referendum actually say?

While the wording of the vote has yet to be determined, the referendum may address several different questions.

Will it be a simple yes or no vote on whether to accept the terms of the EU debt plan agreed last week? Or will it address the broader question of whether Greeks wish to remain part of the eurozone as a whole?

While a weekend survey in Greece found nearly 60% opposed the debt deal reached in Brussels last week, another survey showed that 70% of Greeks want to stay in the euro, according to RBS European Economics – a result that may not be possible if they vote no on the referendum.

“The very wording of the referendum is likely to determine its result,” said Labropoulou.

Q: What would the implications of a “yes” vote be?

The surprise referendum is “a political gamble which adds further uncertainty to the European debt crisis,” said analyst Gary Jenkins of Evolution Securities.

“The prime minister will be hoping for a vote in favor to strengthen his mandate, but if the Greek population votes against, it will leave the IMF and Greece’s European partners in a very difficult situation,” said Jenkins.

If the referendum passes, Papandreou’s government will have the public backing needed to implement severe austerity measures necessary to fulfil the demands of its lenders.

“A ‘yes’ vote would mean a chance of meeting these requirements and getting out of this death spiral,” said Labropoulou.

Q: What would a “no” vote mean?

The implications of a “no” vote on the referendum will be felt far beyond Greek borders, said Louise Cooper, markets analyst at BGC Partners in London.

“Papandreou will give the future of the European Union to his 12 million Greek voters,” she told CNN.

If the referendum fails, Greece could be bankrupt and on its way out of the euro.

“A ‘no’ vote would break the deal immediately between Greece and its lenders – and without the aid, Greece would not be able to meet its expenses so it would immediately default,” said Labropoulou.

A “no” vote would also cause “catastrophic” uncertainty in the banking system, said CNN’s Felicia Taylor.

“This puts us back to where we were before all the negotiations that went on in Brussels last week,” said Taylor. “It’s as though EU leaders didn’t arrive at any kind of a deal at all.”

The effect of the referendum could possibly be felt before the vote happens, as Greece is set to receive another tranche of bailout money in December, according to Labropoulou.

“Greece needs more money to survive,” said Labropoulou.

“They’re due to get another tranche of bailout money in December – but with a referendum vote due in January, it’s difficult to see how they’ll get the money.”

Q: How have markets reacted initially?

Markets worldwide tumbled on the news; Japan’s Nikkei closed down nearly 2% and China’s Hang Seng dropped 2.5%.

European markets lost even more ground, and French and German banks exposed to Greek debt registered heavy losses in Tuesday trading.

The Dow Jones industrial average, S&P 500 and Nasdaq all dropped more than 2% in early U.S. trading.

Read CNNMoney’s full market report here

“We’re back to square one,” said Taylor. “What this does is put uncertainty back into place, and that’s exactly what the markets don’t want to feel.”

Q: What has the reaction been in Greece?

The announcement of the referendum rattled Papandreou’s hold on power Tuesday, as a lawmaker defected from his party, leaving him with a majority of only two in parliament.

Milena Apostolaki announced her resignation from Papandreou’s party, saying the call for a referendum was “a deeply divisive procedure.”

Greece’s opposition leader Antonis Samaras called for snap elections Tuesday, but it is unlikely he has the votes to force one.

Elinda Labropoulou, Richard Allen Greene, Irene Chapple, Kevin Voigt, James Partington and Chris Isidore contributed to this report.