Greek dilemma: What now?

IN THEORY, it could still work. It only requires three miracles.

Maybe the resounding "no" to the eurozone's terms for a third bail-out in Sunday's referendum in Greece (61 per cent against) will force the euro currency's real managers, Germany and France, to reconsider. French President Francois Hollande is already advocating a return to negotiations with Greece.

Maybe the International Monetary Fund will publicly urge the eurozone's leaders to cancel more of Greece's crushing load of debt. Last Thursday, the IMF released a report saying Greece needed an extra 50 billion over three years to roll over existing debt, and should be allowed a 20-year grace period before making any debt repayments. Even then, Greece's debt was "unsustainable".

And maybe Greek Prime Minister Alexis Tripras will accept the terms he asked Greek voters to reject in the referendum if he can also get a commitment to a big chunk of debt relief - say about 100 billion, about a third of Greece's total debt - from the eurozone authorities and the IMF. It's all theoretically possible. It even makes sense. But it will require radically different behaviour from all the parties involved.

Tsipras has already made one big gesture: on the morning after the referendum victory, he ditched his flamboyant Finance Minister, Yanis Varoufakis. He had needlessly alienated every eurozone finance minister with abuse, and it was hard to imagine him sitting down with his opposite numbers again after calling them "terrorists" during the referendum campaign.

The IMF's gesture was even bigger, if much belated. It knew the eurozone's strategy was wrong from the time of the first bail-out in 2010, and it is finally getting ready to admit it.

There was no debt relief at all in the 2010 bail-out, and only private-sector creditors were forced to take a "haircut" (about 30 per cent) in the second bail-out in 2012. Most of Greece's debt was owed to German and French banks - indeed, 90 per cent of the eurozone loans go straight to repaying the banks.

Why didn't the IMF blow the whistle on this long ago? Because it was not taking the lead in these negotiations and, after taking part in the 2010 bail-out, was embarrassed for breaking its own rules. It was aware that devaluation, usually a key part of IMF bail-outs, was impossible for Greece unless it left the euro (which Greeks don't want to do). So the usual post-bailout economic recovery didn't happen. Over five years, Greece's debt has increased by half, its economy has shrunk by a quarter, and unemployment has risen to 25 per cent (50 per cent for young people). The referendum question was deliberately obscure and misleading, but most Greeks know that the current approach simply isn't working. That's why they voted "no" in the referendum. It was a valid choice.

If the eurozone authorities know that much of Greece's debt can never be repaid (which they do), why don't they just give Greece the debt relief it needs? Partly because Chancellor Angela Merkel knows that her own German voters will be angry at more "charity" funded by their taxes, whereas they stay fairly quiet so long as the debt is still on the books. And partly because other eurozone countries would see it as special treatment for Greece.

Italy, Spain, Portugal and Ireland have also been through harrowing bail-out programmes and are still making proportionally bigger interest payments on their debts than Greece. Some other countries using the euro - Estonia, Portugal, Slovakia and Slovenia - have about the same GDP per capita as Greece, and Latvia is even poorer.

So it really isn't possible to predict whether Tsipras and Greece will be offered a better deal or not.

It's equally impossible to say what will happen to the euro "single currency" if there is no deal and Greece crashes out of the euro in the next couple of weeks,

Gwynne Dyer is an independent journalist whose articles are published in 45 countries