CommonSpace explains the reasons behind the Greek crisis and what's likely to be the consequences
What is happening?
The Greek financial system is in meltdown because it can't pay its debts, which is creating a big tumble in global financial markets fearing the crisis could spark a new economic crisis.
Why can't the Greeks pay up?
Greek banks agreed to lots of loans that it and its lenders (mainly German banks) knew it didn't have the money to pay back, but they did it anyway because it made them lots of short-term profit.
When the financial crisis hit, the Greek banks ran out of money, and have been relying on bailout deals ever since from the European Central Bank (ECB) and the IMF.
The bailouts were tied to reforms to the Greek economy that was supposed to make things better, but the economy has only got worse.
Why have the reforms not worked?
Because the government cut back on public services at a time when the economy was in depression, leading to a recessionary downward spiral that led to an unprecedented fall of over 30 per cent of economic output.
So that must be pretty bad for the Greek people?
It's terrible. The medical society of Athens has even sent a formal letter to the UN asking for humanitarian intervention. 212,000 Greeks have submitted to be part of the Greek Government's Humanitarian Crisis Relief Program.
It really is, which is why a new government led by the radical left Syriza was elected in January to oppose austerity but also to stay in the euro.
And how has that worked out?
The plan has basically failed. The ECB and IMF will only give the government lifeline funding to pay its debts if the government agree to reduce spending by EUR8bn by cutting pensions, privatise industries and raise VAT on things like food.
The Greeks have put forward a whole set of different proposals which would meet the spending reduction targets but through "redistributive austerity". Both sides rejected each other's proposals, leading to the breakdown in talks.
So what's going to happen now?
The government has called for a referendum on the ECB and IMF's proposal, to be held on 5 July. The problem is the ECB and IMF won't let them wait that long: the ECB has stopped giving emergency funding to the banks and the IMF wants its money by the June 30 deadline.
They say that the referendum is therefore "irrelevant", but the Greek government say if they win a 'No' vote to the deal they can go back to the European powers and demand a better offer with the legitimacy of the people behind them.
So what will actually happen?
It's likely that if there is a 'Yes' to the deal then the deal will be done, the Greeks will be given extra money and austerity will begin. If it is a 'No', the EU is unlikely to back down from its position after the financial chaos over the past week, even if it is against the democratic wishes of the Greek people.
Greece will be kicked out of the euro and probably the EU, changing the face of Europe forever. But the truth is no one really knows: the financial turmoil over the next week could make things happen more quickly than the 5 July referendum.
So we should probably keep a close eye on how this is going to develop?
Definitely, because the consequences - political and economic - will definitely reach as far north as Scotland.
Picture courtesy of Theophilos Papadopoulos