Montreal -- Greek Prime Minister George Papandreou has scrapped a plan to hold a referendum on the European debt deal that would see widespread austerity measures implemented in Greece. 

The move diffuses some of the angst fuelling a confidence vote on his leadership that could mean political upheaval at a time when the country is facing an economic crisis. 

Papandreou is seeking emergency talks with the opposition in a bid to avoid an early election, which he says would force Greece into leaving the Euro currency. 

Global News spoke to Bessma Momani from The Centre for International Governance Innovation about what a change in government could mean for Greece and the global economy. 

What happens if the Greek government collapses or dissolves? 

More than anything it will shake the confidence in the Eurozone as a block. Even though in reality Greece may only have three per cent of the overall economy, more importantly, what it does is it sets up a potential domino effect of eroding confidence in other economies that are teetering – Italy, Spain and Portugal. What this means for the Euro itself is it would plummet in terms of value. No one knows where that would settle in terms of where the market finds it to be a fair value. 

If the Greek PM steps down or losses the confidence of the government, does that automatically mean the end of Greece in the Eurozone? 

If Papandreou steps aside, it doesn’t complicate the position of Greece in the Eurozone, but the signal that both Angela Merkal and Nicolas Sarkozy gave to the Greek people is if you take on this referendum and you vote no to the bailout package, we shall interpret that as being out of the Euro. 

The opposition doesn’t want to go forward with a referendum. They’ve made that clear. They’ve argued they will have a national unity government. The national unity government that is being proposed by the opposition wouldn’t do much better than Papandreou. Papandreou negotiated a pretty good deal with 50 per cent right off of public debt. It’s quite significant from the 21 per cent they started off with. As much as the national unity government may claim to have a better plan than Papandreou, they are full of hot air. 

Will a change in government expedite the rescue plan? 

If there is a turnover of government, they would still need to get (the rescue package) through Parliament. There still needs to be a government recognition that they are going forward in some way. 

The Euros felt Papandreou took them for a ride. They negotiated a hard deal in Brussels and now this week, he just goes home, and nobody in the cabinet even knows, he announces the referendum. I don’t see them rushing to give them any more money unless there is some sort of national agreement. 

What would the repercussions be if Greece left the EU? 

The part that people aren’t looking at is that it would be a default. The Greeks aren’t going to go out of the EU without saying I’m not paying you back. That wouldn’t be a haircut of 50 per cent, that would be 100 per cent. 

If they do that, the real implications are that French and German banks are going to be exposed to a huge loss on their financial books. That is going to cause plummeting of their ratings. It will cause some sort of banking crisis that will carry on from Europe and who knows where. That’s the kind of calamity that everyone is afraid of because we still don’t know the extent of the inter-linkages in the banking system. 

On the market side, what impact would a government collapse have? 

This is the difficulty of predicting markets. It’s all about confidence and how they interpret political news is still wonderment to all of us. It could go either way depending on what this national unity government looks like.