It is the morning after a historic referendum in Greece. The people have voted against a reforms proposal by the country’s European partners, and it is still unclear what the consequences of this vote will be. One thing that has definitely not changed since last night is the people lining up at the ATMs. But it will soon. By the end of the day, banks are expected to run out of cash.
Recognizing that Greece won’t leave the currency union, the government has formed a new negotiating team, which will be sent to Brussels to resume talks with the country’s creditors. What will be negotiated there will be the terms of a third bailout program. A third memorandum. Even in the best-case scenario, those terms will be harsh and will probably prompt further austerity measures in Greece. However, Greece will secure further funding—which it desperately needs—from its partners, and might also achieve some debt relief.
If those terms are approved by the national parliaments and the deal is sealed, it might as well be that the European Central Bank (ECB) will resume its emergency lending to Greece’s banking system. Eventually, liquidity will be restored and the economy stabilized. If the first installment of the new bailout aid is approved soon enough, Greece might be able to pay the 3.5 billion euros it owes to ECB for two government bonds due July 20th. And as long as we’re exploring this overly optimistic scenario, the country might as well pay the 1.5 billion euros of outstanding debt owed to the International Monetary Fund before its governing council has to announce an official default by the end of the month.
The dangers in this scenario come from the government’s own party. The most radical factions of the Syriza government will by no means accept further austerity measures, especially after the people’s vote against it in the referendum. The government might eventually collapse, leading to the formation of a coalition government with the participation of pro-European opposition parties, or to new general elections altogether. This isn’t good, but it’s a more realistic outcome than the one explored above.