Greece’s Debt Crisis Explained

The question of how to save Greece, debated for more than five years, is the European Union’s recurring nightmare. If the country goes bankrupt or decides to leave the 19-nation eurozone, the Greek debt crisis could create instability in the region and reverberate around the globe.

What’s the latest?

Greece’s finance minister, Yanis Varoufakis, said on Thursday that he would resign immediately if Greeks voted yes in a referendum to accept the terms of an international bailout deal for the country.

That came a day after the country’s prime minister, Alexis Tsipras, urged citizens to vote “no” in the referendum, which is scheduled for Sunday. A “no” vote would potentially improve his negotiating position with European officials. European finance ministers, for their part, said after Mr. Tsipras’s address that they will wait to see how Greeks vote before beginning negotiations again.

What will a referendum do?

The country is approaching one of the most important votes in its modern history on Sunday — one that could redefine its place in Europe — yet many people acknowledge they barely have a clue as to what, exactly, they are voting on.

Greeks have been asked to vote yes or no on whether they supported the terms offered by creditors last week — an offer that in effect expired with the existing bailout package on Tuesday night, and that appears to have been supplanted in any case by a counteroffer offer put forward by Mr. Tsipras.

Greece last held a referendum in December 1974, after the collapse of the ruling military junta. Then, the question asked what type of government Greeks would prefer, and the choices were pretty clear — king or republic. Voters picked republic.

Today, critics argue that Mr. Tsipras is distorting democracy by holding a rapid-fire vote in which people lack the time to understand what they are voting for.

What happens next?

That’s the billion-euro question.

Sunday’s referendum will test whether Greek citizens want to stay in the eurozone. New elections could also be held if Greece’s financial situation worsens. Or Greece could test the willingness of Russia or China to help should talks with Europe falter.

Some people are now saying that the real deadline for Greece is late July, after all the warnings that a Tuesday deadline with the International Monetary Fund was the make-or-break day.

July is when Greece owes the European Central Bank a 3.5 billion euro payment. If there is no international bailout program in place by that time, and little chance of such a program being in the works, the central bank at that point would probably have to finally take Greek banks off life support.

Did Greece default on its debt?

When borrowers — whether they are countries, companies or individuals — do not pay their debts on time, they are in default. For practical purposes, then, Greece — which on Tuesday failed to make a scheduled debt repayment of about 1.5 billion euros, or $1.7 billion, to the I.M.F. — has defaulted.

The I.M.F., however, does not use term default. It instead places countries that miss their payments in what it calls arrears.

Semantics aside, missing the payment might lead to a situation in which other large Greek debts are classified as being in default.

A default, even when it is not called one, is an event that can have serious repercussions for a country’s economy and relations with other nations. Defaults can upset financial markets, create uncertainty for other lenders, and generally crimp economic activity.

How does the crisis affect the global financial system?

Europe is a union in which most real decision-making power, particularly on matters involving politically delicate things like money and migrants, rests with 28 national governments, each one beholden to its voters and taxpayers. This tension has grown only more acute since the January 1999 launch of the euro, which now binds 19 nations into a single currency zone watched over by the European Central Bank but leaves budget and tax policy in the hands of each country, an arrangement that some economists believe was doomed from the start.

Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece. (Some private investors who subsequently plowed back into Greek bonds, betting on a comeback, regret that decision.)

And in the meantime, the other crisis countries in the eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion than they were a few years ago.

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