Well, the Europeans thought they had a deal. Yet it appears Greece had other plans. Proving yet again that Greece is not worthy of European Union membership and is incapable of handling the responsibility that comes with using the euro, Prime Minister George Papandreou threw October’s grand debt bargain to the whims of the fickle Greek electorate by calling a referendum in January.

The move appeared to catch all major parties to the deal — including Papandreou’s own finance minister — completely by surprise and drew harsh criticism across the board. World stock markets tumbled on the news as investors are left to grapple with the question: What happens now?

What happens if Greek voters say “no” to the terms of the bailout? Here’s a look at the possible outcomes:

• A “no” vote will mean that aid from the various organs of the European Union would immediately cease, forcing Greece into a “hard” default rather than the negotiated “voluntary” restructuring. Though it would be unprecedented and there is no process in place for it, Greece most likely would be expelled from the euro zone and quite possibly the European Union itself.
• A “yes” vote might preserve the fragile status quo. But at this stage, it might not matter. Papandreou’s move confirms northern Europe’s (and primarily Germany’s) worst fears about Greece’s credibility as a negotiating partner. Good faith has been shattered, and European leaders will not not risk embarrassment by trusting Papandreou or his successors again.
• The referendum might not happen at all. Papandreou’s own party is in open revolt over his unilateral decision and has demanded that he resign. Of course, a snap election would throw additional political uncertainty into the mix, which — again — points toward an unruly hard default.

Greece is set to receive an 8 billion euro bailout payment in mid-November, but that would now seem to be at risk. Why would the Europeans throw in an additional 8 billion euros when default is now all but guaranteed?

The next 24 hours will be telling. If Papandreou resigns and is replaced by a “national unity” government, there is an outside possibility that last week’s deal can be cobbled back together. But at this point, it is more likely that Greece is thrown to the wolves and left to fend for itself.

If Europe’s leaders move quickly and send an unambiguous message that the crisis stops with Greece, Europe can avoid a meltdown. But it will involve a rigorous implementation of the remaining planks of last week’s agreement. The European Central Bank will have to step in to support the Italian bond market and to act as a lender of last resort to Europe’s banks. And the monies that were to be used to prop up Greece should be used to support Europe’s banks, which still need to be recapitalized.

In the meantime, get ready for more volatility. And you can forget about the “risk on” trade that I mentioned last week. While I recommend using any volatility as an opportunity to accumulate high-quality European and American dividend payers that will survive Armageddon — crème de la crème blue chips like Unilever (NYSE:UN), Telefonica (NYSE:TEF) and Nestle (PINK:NSRGY) — I cannot in good faith recommend more speculative sectors like financials or commodities.

And once the dust settles — which might be awhile — you might also revisit these three Greek stocks to consider after a Greek default.

Hang on tight, dear reader. 2011 promises to have a wild finish.

Disclosure: UN, TEF and NSRGY are recommendations of the Sizemore Investment Letter.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. Sign up for a FREE copy of his new Special Report: “3 Safe Emerging Market Stocks for a Shaky Market.”