Post originally appeared on Deep Resource.
All the signs are that Greece could go bust by May 12, when it needs to pay back a large sum of money to the IMF. The government is hardly paying its bills, salaries and pensions already. And since it is unwilling and/or unable to implement the necessary reforms, the donor countries are no longer willing to keep on paying. What it will mean is a bank run and total collapse of the banking system. The government will stop paying anything and Greece will need to start all over again and rebuild a new state, perhaps with a reintroduction of the drachma.
The euro is in Greece to stay, officially or unofficially, regardless of what the ECB and/or Greek government will decide. Income per capita will dramatically drop to perhaps Ukrainian levels, a situation that could continue for many years.
In the long run, writing off a substantial part of the debt is inevitable, but only after an international agreement and not before Greece has fallen into a deep abyss. Greece is the hard but necessary example, that needs to be set to prevent the entire euro system to collapse, because nobody will pay its debts anymore if Greece is let off the hook. Greece will be the lesson for all that debt is poison and that in the current situation debt reduction is more important than economic growth.