See you on the other side.

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Is Anyone Ready for a 'No' Vote in Greece?

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Yanis Varoufakis says he'll quit as Greece's finance minister after next weekend's referendum if the electorate votes "Yes" to the bailout conditions demanded by the nation's creditors. If there's a "No" vote, he also says he'd "prefer to cut my arm off" than sign an agreement that doesn't include debt restructuring. All of which suggests that, come next week, he could either be jobless or one-armed -- because his accompanying assertion that a more palatable deal can be completed within "one hour" is the stuff of fantasy, and without some kind of deal Greece's money will simply run out.

The Euro's Existential Crisis

What was already a Greek tragedy is becoming a farce. On Wednesday, it looked like Greek Prime Minister Alexis Tsipras had performed a remarkable about-face in accepting most of the terms demanded by creditors for a new bailout. As is typical, though, he wanted a tweak here on pension reform and an adjustment there on tax discounts for the country's tourism-dependent islands. Greece's interlocutors declined to play along. "We see no grounds for further talks at this point," Dutch Finance Minister Jeroen Dijsselbloem said.

By proposing to hold a referendum on Sunday -- the ballot's phrasing is a model of obfuscation -- Tsipras has prepared a noose for his own neck. His EU counterparts insist that the vote should be interpreted as a clear in-or-out choice on the euro. In an interview with Bloomberg Television's Guy Johnson today, though, Varoufakis clung to the argument that because "Europe has been making up the rules as it goes along," it will cave in to Greece's wishes if Greeks vote to reject further austerity. The European Central Bank, Varoufakis suggests, will provide the billions of euros needed to reopen the nation's banks next week, while the EU will agree to an aid deal that the Greek government will effectively write for itself -- including extending the repayment dates of existing debts.

Related: Greece Default Watch

That isn't going to happen. Debt restructuring will be needed at some point, but the Greek referendum won't put it on the agenda for next week no matter what the outcome. And while the Greek government sees a clear aftermath to a a "yes" vote -- it will sign the deal it was offered on June 24, even though the EU says it's no longer valid -- the chaos following a "no" vote will be a pitiful sight. While Varoufakis and Tsipras will argue they've received a new democratic mandate, the rest of the EU will be debating how to kick the country out of the euro -- even though no legal mechanism for ejection exists.

Sunday's vote is too close to call. A GPO poll via euro2day.gr surveyed 1,000 people; 47 percent favor a "yes" vote, with 43 percent leaning to "no" with a margin of error of 3.1 percentage points.

After failing to make a $1.7 billion payment that came due on Monday, Greece is now in arrears to the International Monetary Fund -- a euphemism for default. Capital controls introduced over the weekend restricting Greeks to daily withdrawals of just 60 euros per day are starting to hurt; ATMs are running out of 20-euro notes, effectively imposing an even lower limit with just 50-euro notes available. The banks may soon literally run out of money, prompting Greeks to hoard whatever cash they can get their hands on as companies refuse to accept payment in credit cards. The situation is fast metastasizing into what the incoming government erroneously claimed it was inheriting in January -- a humanitarian crisis.

Varoufakis was right on one point. Asked if he believed the EU would prefer not to have to deal with his government at all, Varoufakis said that was "quite self-evident." When asked if Germany is seeking regime change in Greece, he replied with "you may very well say that; I couldn't possibly comment."

This is a plausible hypothesis, and a worrying one. Tsipras's behavior has been unconscionable: He's shown a cavalier disregard for the social consequences of gambling away his country's relationship with its creditors. But the people of Greece put him in power in January in free and fair elections. If they effectively throw him out by voting "yes" on Sunday, that's their choice. But the EU has to tread very carefully in not being seen to seek the overthrow of the government.

And while European leaders are absolutely justified in their fury at Tsipras's brinkmanship, it would be dangerous to let that anger cloud their judgment next week, however the referendum plays out. In the event of a "no" vote, an EU neighbor could suddenly be on the verge of running out of food and medicine. Rather than succumb to any temptation to take revenge for five wasted months, Europe needs to focus on resolving the crisis within its borders and getting the Greek economy back on the road to recovery.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net