Greece is going to subject the European bailout package to a popular referendum. Time to head for the hills:

Pressured by the U.S. and China to avert the threat posed by the crisis to the global economy, euro-area leaders announced a package of measures on Oct. 27 including a second Greek bailout of 130 billion euros ($178 billion) and a commitment by bondholders to accept a 50 percent writedown in Greek debt. Also included were bank recapitalizations and a scaled up European rescue fund.

“If the Greek people don’t see the necessity of backing Papandreou we have a whole different ballgame,” Otto Fricke, the budget spokesman in parliament for Merkel’s Free Democratic Party coalition partner, said by phone. “If he doesn’t get a majority, then there’s no second aid package, no voluntary haircut. We’d have a potentially explosive situation, one that leaves us today baffled as to what we could possibly do next.”

The Greek people will reject it. Greece will default. And then it begins…

UPDATE: The latest from Athens is that the Papandreou government will likely fall this week, scuttling the bailout proposal, and probably guaranteeing default.

UPDATE.2: Of course, it is also difficult to feel too sorry for the Greeks:

Jubilation about the German deal to save the euro could prove short-lived if fresh news of Greek tax evasion gains wider currency. There are more Porsche Cayennes registered in Greece than taxpayers declaring an income of 50,000 euros (£43,800) or more, according to research by Professor Herakles Polemarchakis, former head of the Greek prime minister’s economic department.

UPDATE.3: Pyrrho points us to Krugman’s grim analysis for how this is going to play out. Excerpt:

At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.

It all sounds apocalyptic and unreal. But how is this situation supposed to resolve itself? The only route I see to avoid something like this involves the ECB totally changing its spots, fast.