Greece is heading for a default on its debts as early as tomorrow, depending upon the IMF. The government has scheduled a referendum for Sunday for its citizens to vote on a new austerity plan that the government itself is recommending a “no” vote on. This will likely result in Greece leaving the euro, and possibly undermine the euro currency union if other distressed countries decide to leave the euro currency union.
The New York Times‘ Paul Krugman writes, Greece Over the Brink:
It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington automatically protects seniors against any threat to their medical care or their bank deposits.
Leaving a currency union is, however, a much harder and more frightening decision than never entering in the first place, and until now even the Continent’s most troubled economies have repeatedly stepped back from the brink. Again and again, governments have submitted to creditors’ demands for harsh austerity, while the European Central Bank has managed to contain market panic.