Back in 2001, Greece abandoned the drachma for the euro. But even then, trouble was at hand: The European Central Bank (ECB) warned Athens it still had a lot to do to get its economy up to speed. But, alas, it was young economic zone love!
Much like being a T-bird or Pink Lady, there are certain ~rules~ you have to adhere to if you want to be a part of the eurozone and the ECB, so your economy doesn't become a drag on the rest of the European Union.
For a few years, everything appeared to be going fine. But then the global financial crisis hit in 2008 and spurred the European debt crisis of 2009. (TL;DR: the EU had to scramble so the debts of several countries didn't bring down the whole euro.)
This was extra bad for Greece as it had been propped up by the European Union for so long and it hadn't been exactly, er, responsible about it. It's managed to borrow enough that its debt is about 175% of its GDP, so it owes way more than it produces.
Greece has been lent 240 billion euros over five years to stave off a crash — but it had to use them to pay off its many international loans and past spending rather than growing the economy. And then it managed to still nearly default.
Meanwhile, Germany — Europe's largest economy — has seen its economy recover far faster and stronger than the rest of Europe, based a lot on its manufacturing strength. This means Germany has managed to get a lot of what it wants post-2008.
Germany is big on austerity — or the idea that reduced public spending helps boost an economy — and says that to get more money from the ECB, Greece has to cut public spending. A lot. And Germany is all like, "Go ahead, try it! It's fun!"
Greeks weren't super happy about this, especially as among other issues unemployment continued to be the highest in Europe. This helped left-wing party Syriza win Greece's national elections earlier this year on an anti-austerity platform.
The new government, led by Alexis Tsipras, worked out a deal in February that extended the deadline for Greece's debts to come due. But the new June 30 due date is here and Greece won't accept the terms needed to get the last bit of bailout money.
Greece still has about $8.1 billion left in promised bailout money. But it doesn't want to implement the new spending cuts the European Commission (i.e., Germany), the International Monetary Fund (IMF), and ECB want before they release the funds.
The Greek government confirmed on Tuesday that it planned to throw caution to the wind and default on its IMF loans.
The crisis has sparked a lot of talk of a Greek exit from the euro (or "Grexit") and return to the drachma. Investors fled from the euro on Monday based on the possibility that could happen.
(Also let's not forget about the fact that Greek anti-austerity protests in 2010, 2011, and 2012 all turned violent.)
There's been chatter over the years about what it would mean if a country were forced to abandon the euro — but this is the closest we've gotten. And to be honest, nobody knows what it would mean for the euro, let alone global markets.
Making things worse, Greece really needs that money — in part from the IMF — to be able to pay back...the IMF. No advanced economy has ever defaulted and Greece owes $1.8 billion as of Tuesday. And Greece can't exactly hide from that fact.
People are, understandably, starting to freak out. Strict capital controls have been put in place as an attempt to prevent a run on banks — ATMs have had their withdrawal limits capped and banks across Greece have closed for the week.
Now Greece is fast running out of cash, but it also has a government desperately trying to a) not collapse, b) not default, and c) not crash the economy. It leaves them trying to be a lot of things to different people.
So it opted on this gambit: Next Sunday, the government will put the idea of more austerity to a vote. While it isn't a foregone conclusion, given austerity's unpopularity the referendum is being seen as a de facto choice between the euro or the drachma.
