As Greeks go to the polls they find themselves at a beggar's crossroads, one which leads to calamity in every direction.

If they see the unintelligible question being put to them as a vote on whether to accept the offer which was on the table from Greece's official creditors - which is how their government describes it - they are being asked to support more of a policy of austerity which has utterly failed them and their creditors.

No one looking at the Greek economy, which has seen massive declines in output, employment, incomes and public spending, would say that it should be running ever larger primary surpluses (budget surpluses before interest costs) just so it can nibble away at debt it can never hope to repay.

It would be a vote for more of a gruesome depression and debt servitude, which only makes sense to European politicians who don't want a mountain of bad debt to be written off on their watch.


The only reason the Greeks would vote yes is that the alternative of default, leaving the eurozone and devaluation looks even worse.

Greece's international credit is already shot but formal default would hardly hasten its return.

While most of Greek government debt is now held, indirectly, by other governments - 82 per cent, Reuters reports - not all of it is.

Who knows how long it would be before Greece could return to credit markets?

Worse, the replacement of the euro with some hastily arranged new currency, inevitably worth less than the euro, would be a brutal adjustment.

It might, with a lag, boost the competitiveness of Greece's tourist sector and other exports, but it would immediately see the cost of imports soar, including necessities.

So if Greek voters see the referendum, as the likes of European Commission president Jean-Claude Juncker and German chancellor Angela Merkel say they should, as a vote on whether to remain in the euro area, you would expect them to vote yes.

But Oliver Hartwich, a German economist who heads the New Zealand Initiative and who has been following the Greek crisis closely for years, believes Grexit is the lesser evil.

"The whole debt crisis is a symptom, not the cause," he said.

"The real cause is Greece is fundamentally uncompetitive. They need that devaluation. It will be chaotic and ugly but eventually they will recover because they will get the benefits of external devaluation and get more competitive," he said.

"You would have to give them humanitarian aid because they would not be able to pay for imports of food, fuel and pharmaceuticals."

But escape from a one-size-fits-all monetary policy and an overvalued exchange rate is not all Greece needs.

Its fellow Europeans are also right to press for structural reform, Hartwich argues.

"They should probably start collecting tax from rich Greeks. They have to deal with endemic corruption. They have to shrink the public sector, which is just too big for a country that size.

"And they have to do something about their pension system - Greece spends about 16 per cent of GDP on pensions."

The third option, for its official creditors - the European Union, the European Central Bank and the International Monetary Fund - to give it a break, write its debt down to manageable proportions and allow fiscal expansion, seems to be off the table for political reasons.

The fateful decision in 2010, to bail out Greece and other peripheral eurozone countries in fiscal trouble, may have made sense at the time given fears of contagion, financial instability and an existential threat to the single currency.

But the effect of successive bailouts has really been to bail out private sector creditors and socialise the debt.

It creates the political economy problem that for European governments to acknowledge the reality of Greek insolvency and let it off the hook would anger their own taxpayers and infuriate in particular the Irish and Portuguese who have worked painfully through their bailout programmes.

As things stand the euro has become a club you are not allowed to leave, even if it is intolerable to remain in. Stein's law comes to mind - what can't continue indefinitely, won't.

So while we wait to see what the hapless Greeks and exasperated Europeans do next, does New Zealand have anything to fear?

Probably not. The situation is unprecedented and financial markets don't like uncertainty.

But compared with five years ago the European economy, while hardly the picture of good health, is in better shape.

There is the European Stability Mechanism, a 500 billion ($825 billion) bailout fund which ought to be big enough to deter speculators, and a standing pledge from ECB president Mario Draghi to do "whatever it takes" to defend the single currency. That ought to be enough to quarantine the crisis.