Papandreou's decision to ask for a public referendum vote was a cold, calculated political move that may backfire for him and for Greece. It's nothing new, it's an old maneuver. Everything his government has tried over the past two years, hasn't worked. The people don't want the austerity measures, the international financiers are not happy with the results of his actions, the opposition is crucifying him every day, so he pulled the oldest trick in the book - if you are being criticized for a problem, then make those who criticize you part of the process and thus part of the problem.
The EU powers, Germany, France,... are worried about the outcome of this. Can you imagine if Portugal and Spain followed the example of Greece and had a referendum every 3 months to decide if they will accept a new monetary solution offered to them? Chaos!
Nothing wrong with referendums, but you can't have it both ways. If you believe that when the populous elects you in general elections, they provide you with the mandate of leading the country and representing them, than that's the only referendum you need. If you are not sure, then you need to have a referendum vote early on, not after your actions have led the country and its people to the abyss, and after you've turned EU and the international community upside down trying to find a solution for you, and have agreed to the solution they finally come up with.
German people were NOT happy about bailing out Greece, they have been saying that for the last 2 years. They claim Greeks are lazy, they don't want to work and always complain. So, what should Merkel do? Have a referendum to see if Germans wanted to bail out Greece? No, as a leader she did what she know was good for the country and the country's leading position in EU, knowing that Germans would not like that and she might pay for her actions in the next elections. That's what leaders that are interested in the good of their country (and not always in political benefit) do!
What will happen now? What if indeed the Greek people reject the "deal" the international economic community has put together and Papandreou accepted at 4:00 last Saturday? Is it back to the Drachma, with all Greek debt (~ 500 bn) in Euros? The Drachma will have to be devalued by 50% or more, the minute it is established, in order to increase the economic viability of Greece. So now, they will owe the equivalent of 1 trillion euros (in Drachmas). How do they get out of that one?
The whole world is watching. Somehow, Greece has managed to be the center of the storm, and in the headlines many times in the past few years. A glimpse of their past, where their actions influenced humanity? I doubt it.
