The plan, which could possibly end up turfing Greece out of the eurozone, alarmed investors and pushed the spread between Germany and France's 10-year bond yields to its largest gap since the introduction of Europe's single currency.
Michael Kemmer, head of Germany's BdB banking association, said Tuesday that Papandreou's scheme had caused "considerable uncertainty."
"Uncertainty will probably last for weeks as a result and is anything but helpful in terms of stabilizing an already difficult situation," he said.
"Important details following the euro summit will now be delayed or, in the worst case scenario, put on ice," added Kemmer. "In addition, it is totally unclear what would happen if the Greek people reject the rescue packet."
Papandreou called the planned referendum a “democratic and highly patriotic step,” but the banking sector was not so enthusiastic. Benjamin Schroeder, interest strategist at Germany‘s Commerzbank, warned that “the entire rescue package is now open to question again.”
Folker Hellmeyer, head analyst at Bremen's Landesbank, described Greece's decision as “suicide,” while Commerzbank expert Christoph Weil said Greece was risking bankruptcy.
Weil added that the patience of the international community “was slowly running out,” and that if Greece did not carry out the reforms demanded by the EU's debt package, “the country would receive no more money.”
The euro's value fell against other currencies midday Tuesday, when it was worth slightly less than $1.37, off three cents from Monday. Deutsche Bank's shares fell 9.6 percent to €27.44, while Commerzbank's shares fell 9.5 percent to €1.61.