Madness without method

WEDNESDAY July 1st began as a footnote in financial history textbooks: at midnight Greece became the first rich country to default on the IMF since the fund's inception in 1945. As the hours tick on, its entry on the tortuous timeline of the euro-area crisis grows longer; European leaders look determined to pack as much of the absurdity and tragedy that is so characteristic of the crisis into a 24-hour period as they possibly can.

The early hours were most notable for what didn’t happen. Greece's second bail-out programme officially ended on June 30th, leaving Greece without bail-out support for the first time since 2010, yet the Greek financial system is still standing—just. The IMF default did not trigger anything catastrophic. In theory, euro-zone finance ministers, as shareholders in the funds used to bail out Greece, could have clubbed together and declared it in default of those loans, by virtue of “cross-default” clauses in the IMF programme. To Greece's relief, they have not.

Few expected they would take such a step before Sunday’s referendum. Yet at times today it was unclear whether there would be one after all. By mid-morning, the Financial Times was reporting that Alexis Tsipras, the Greek prime minister, was suing for peace. A letter from Mr Tsipras to his Troika counterparts said Greece was willing to accept a proposal put out by the European Commission on Sunday (one based on, but ever-so-slightly different to, the one the Greeks will be asked to vote on). Mr Tsipras's offer included concessions on tricky subjects, including VAT and pensions. For a moment, a quick and (relatively) quiet resolution to the stalemate seemed possible. European stocks bounced.

But the offer, predictably, was subject to “amendments, additions or clarifications”. These averred to be the same issues—around tax breaks on Greek islands and raising the retirement age—which have foiled attempts at agreement in recent weeks. It wasn’t long before Wolfgang Schäuble, Germany’s unbending finance minister, poured cold water on the offer, followed shortly by his boss, Angela Merkel. Both are extremely reluctant to negotiate anything before Sunday. By contrast, François Hollande, France’s president, is reportedly angling for a deal before then.

With the new offer tabled and tossed out, the news wires speculated that Mr Tsipras might finally reconsider holding his referendum. Yet in the Athens afternoon he addressed the Greek people and declared that the vote would go ahead, and that Greeks could have everything that they wanted—continued euro-zone membership and a better deal—by voting no to the Eurogroup's latest offer, despite euro-area leaders' best efforts to frame the vote as an effective in-out plebiscite. Meanwhile the leader of the Council of Europe (a European intergovernmental organisation which rather confusingly does not fall within the structure of the European Union) warned that the referendum might "fall short of international standards" thanks to insufficient monitoring and the lack of clarity in the proposed ballot language.

Neither is the day over. The European Central Bank has yet to decide whether and how it will continue to provide emergency liquidity aid to Greece’s banks; some reckon it might increase the discount it applies to the value of the collateral it accepts in exchange for its emergency lending, tightening the screws on Greek banks that are already under intense pressure, despite the protection of capital controls. And late in the afternoon euro-zone finance ministers will have yet another teleconference to consider Greece’s latest gambit.

There may not be much to say while the referendum looms: a vote on which a great deal now rides. A "yes" vote would probably lead to a new government: Mr Tsipras and his fellow ministers would struggle to stay in office if voters reject their advice to spurn Greece’s creditors. That could lead either to the formation of a new government of national unity from the current parliament, or to fresh elections. A yes vote would unleash a torrent of political goodwill from Greece’s creditors, who will have in effect forged a successful alliance with Greek voters over the heads of their government. Once Greece forms a government, assuming it is no longer led by Syriza, negotiations could begin immediately on a third bail-out, including at least the promise of a restructuring of Greece’s vast debts, worth nearly 180% of GDP. The terms of such a deal may not differ drastically from the creditors’ last offer to Greece, but if they find themselves working with a more cooperative government that should not be too drastic a difficulty: after all, it is precisely that offer that Greeks will have just approved.

A "no" vote, on the other hand, would put Greece on the fast track to exit. The drop dead date is now July 20th, when €3.5-billion worth of ECB bonds must be repaid. Greece could not make the payment without a new bail-out programme. Defaulting on the ECB would almost certainly push the central bank to pull its support for Greek banks entirely. That, in turn, would force the Greek government to either tolerate the complete collapse of its banking system or to make good on its guarantee of Greek deposits by printing a new currency. But even a "yes" vote would leave precious little time to conclude a new bail-out deal. Neither is it clear whether Greece's banks can survive until July 20th.

And in Athens, a large banner declaring “No to blackmail and austerity” now hangs outside the finance ministry (the work of trade unionists rather than the government, its finance minister, Yanis Varoufakis, later clarified). But the day is not yet over.