Greece's planned referendum on the latest bailout, announced as polls show its citizens reject it, has thrown the whole pack of cards up into the air. Bank runs, disorderly default, a Greek exit from the euro and vicious contagion elsewhere no longer look like wild scenarios.
If the Greeks vote No in a referendum that is likely to take place in January, that aid may also disappear. Given that Athens only has enough money to pay its bills until early next year, it could then be forced into a disorderly default. The country's banks would then go bust because they hold huge sums of Greek government debt, causing the economy to plunge further into the abyss. Greece would have little choice but to quit the euro. But that would bring with it mayhem not least because Athens is still running a primary budget deficit. With nobody willing to provide it with funding, the government would have to embark on even more severe austerity.
Papandreou may hope that such a nightmare scenario will shock his fellow citizens into voting Yes. But such scare tactics could actually trigger problems before the Greeks even have a chance to vote. Depositors have been gradually taking their money out of Greek banks. Faced with the possibility of a No vote, an exit from the euro and the bankruptcy of their banks, a bank run could accelerate. As of August, there was still 189 billion euros of deposits in Greek banks. The European Central Bank would then have to decide whether to allow the central bank of Greece to continue making emergency loans to the country's banks or force their bankruptcy even before the referendum.