Greek CollapseA high-risk roll of the dice by the Greek government may threaten the country’s financial survival and the overall cohesion of the euro zone.

Greek Prime Minister George Papandreou announced unexpectedly on Monday that he would hold a public vote on Europe’s latest policy recommendations for Greece, which, if enacted, would enable the country to circumvent default and stay in the euro zone.

European leaders and investors were shocked at the move, which some economists say increases the probability that Greece will end up defaulting, while abandoning the euro at the same time.

Spain and Italy would then also be in danger of default and put Europe at risk of a major bank run.

“If they [the Greeks] vote no, then we are back to square one,” said Diego Iscaro, senior European economist at IHS Global Insight. “Greece will be without a deal and without a government.”

Global stock markets tumbled in response to Papandreou’s decision, since it cast a shadow of doubt on Europe’s decision last week to give Greece more bailout money and to force banks to write off 50 percent of Greece’s debt.

The S&P 500 plunged 2.79 percent, the German DAX fell 5.00 percent, and the French CAC 40 plummeted 5.38 percent on Tuesday.

The euro also fell 1 percent against the dollar.

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