I bet it felt just great for the almost two thirds of Greeks who voted a middle finger salute to the Northern Europeans who have been paying their bills.  But they are only beginning to reckon with the consequences.  The left-wing PM Tsipras and his Syriza brain trust claimed that they would strengthen Greece’s bargaining position by a “no” vote, but as it turns out, they just crapped out.  Writing in the Wall Street Journal, economics professors Jeremy Bulow (Stanford) and Kenneth Rogoff (Harvard) explain why:

… in calling the referendum, Athens has fired its most powerful weapon against Europe—and so far the contagion effect has been minimal. Let’s face it, the No. 1 reason Europe has been willing to bend over backward to help Greece is that the EU leadership feared the fallout from a Greek exit. Yet spreads on bonds for other nations of the eurozone periphery inched up only 10-20 basis points on Monday. This lack of contagion seriously undermines Greece’s bargaining power.

What the Greeks might not have understood is that when the Europeans said they were pulling last week’s offer from the table, they might have really meant it. If Greece’s intention was to try to blackmail Europe with the referendum, it has backfired. Yanis Varoufakis, who was pushed out as finance minister on Monday, prided himself on using game theory in his negotiations. It is not too late, as he leaves the stage, for Mr. Varoufakis to tell his fellow members of the hard-left Syriza party that rolling the dice with the referendum has changed Greece’s position radically for the worse.

The two professors go on to explain in clear terms how serious the problem is for Greece.  Mere spending cuts won’t do it.  Fundamental structural reform is necessary, and only Greeks can bring it about.  As the professors point out:

If the Greek government really wanted to come clean, it would explain that even if all the country’s debt were wiped out tomorrow, policy makers would still have to find a way for Greece to escape the current epic recession while living within the country’s means.

I am frankly pessimistic that Greece will voluntarily undertake the painful adjustments necessary for it to live within its means.  Currently, it is getting tax money from harder-working Northern Europeans to subsidize its leisure (including startlingly young retirement-age pensions, which are also very generous).  Who would want to give that up?

My guess is that Greece will eventually leave the euro, and that will allow the country to find its own level with its own currency (that will be worth so little that prices for Greek exports and FX-generating activity [mostly tourism] will be able to sustain much lower levels of consumption).

That would be the best outcome.  There are a lot of much worse possibilities to contemplate.  But let’s leave that for another day.