Alexis Tsipras’ gamble in calling a referendum on the bailout deal has failed in two respects. First, it has not prompted Greece’s creditors to offer the country a better deal. Second, they are not going to extend the bailout until the referendum—so, it will end on Tuesday.
This means that without capital controls, the Greek banks will not be able to open on Monday morning. As the Irish Finance Minister put it, ‘The crisis has commenced’.
We are now waiting for two things. First, will the Greek parliament and president approve the referendum. Second, will the European Central Bank continue to prop up the Greek banks.
But, at the moment, it looks as if Greece is heading out of the Eurozone. Initially, this will be very painful for the country—one Cabinet minister told me recently that if Greece left the Euro there would be ‘six months of utter chaos’ and the situation would get so bad that humanitarian aid would be required. But in the medium term, this probably offers Greece the best chance of getting its economy growing again.
As for the Eurozone, it would have to respond to a Greek exit with further integration among the remaining members. Without that, southern European countries with weak public finances would find their borrowing costs rocketing to unsustainable levels.
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