Even if Europe dodges a financial meltdown, it may not be able to avoid a recession.
The deal European leaders reached last week to defuse the continent's debt crisis was thrown into turmoil Tuesday by the Greek prime minister's surprise move to call a referendum on Greece's latest rescue package. If voters reject the package, Europe could face a potentially devastating Greek default on its debt.
Stock markets plunged around the world, particularly in Europe.
Even if the debt agreement leads to a long-term solution to the crisis, the pact does nothing about other threats to Europe's economy: deep cuts by over-indebted governments, high unemployment, stingier bank lending and declining exports.
Many economists think Europe is nearing a recession that would harm the United States, China and other countries whose economies depend on the continent. The problems are illustrated by The Associated Press' latest quarterly Global Economy Tracker, which monitors data in 30 countries:
— Four nations — Italy, Spain, Britain and Norway — reported annualized growth of less 1 percent in the April-June quarter. Economies generally must grow at least 2.5 percent a year just to keep unemployment from rising.
— Spain had the highest unemployment among countries the AP tracked: 21.2 percent in August, which rose to 22.6 percent in September.
—Greece and Italy were buckling under the weight of government debt. In Greece, those debts equaled 161 percent of national output in the January-March quarter, second to Japan's 244 percent. Italy's government debt equaled 113 percent.
Financial markets have been spooked by fears that Greece and perhaps larger countries, like Italy, would default on their debts.
Banks would be stuck with huge losses on their government bond holdings. A panic like the one that nearly toppled the U.S. financial system in 2008 could follow.
European banks agreed last week to take a 50 percent loss on their Greek bonds. They are also to set aside more money to cushion against future losses. In addition, eurozone leaders hope to strengthen their bailout fund to keep the crisis from spreading to bigger countries.
Financial markets initially roared their approval. But fears that the debt deal will collapse or fall short of solving the crisis have triggered deep selling since late last week.
Analysts noted the paucity of details, wondered how many banks would adopt a voluntary 50 percent write-down on Greek bonds and questioned where the money for the enlarged bailout fund would come from. European leaders last week approached China for financial help.