Both sides say that an agreement is now extremely unlikely.
“The negotiations are clearly ended, if I understand Mr. Tsipras correctly,” said German Finance Minister Wolfgang Schäuble as the continent’s top finance officials gathered for their fifth emergency meeting in the past two weeks. “We have no grounds for further discussions.”The first question is whether either is bluffing. Until Tsipras called for a referendum, I had guessed that there would be an agreement which would prevent default/kick the can down the road. I now guess that there won't be an agreement.
I don't see how a Tsipras government could survive if he were to try to accept the creditors' demands and calls off the referendum. Calling a referendum as a bluff would be a crazy bluff, but the key point is that he is just Prime Minister and doesn't have the authority to fold*. At the same time, calling a referendum violates the norms of international negotiations which require that the general public is kept out of it except, perhaps, for approving the final agreement (with minor amendments and a second vote scheduled if they vote the wrong way the first time). If the European Finance ministers/Troika grant concessions in exchange for cancellation of the referendum, they will have to do something similar in all future negotations. This might be in the interest of the European Union, but it would be too humiliating and infuriating.
Greece doesn't have the cash to meet a payment to the IMF required on Tuesday June 30th. The referendum is scheduled for July 5th (so Greeks won't have a chance to declare independence from the Unitet States of Europe on the 4th of July). This is really at least as soon as it can practically be managed. Some concession must be made to prevent default.
I think this is acceptable to Greece's negotiating partners (very especially including Shäuble). Last week Greece made major concessions and the creditor replied with extreme demands that the primary surplus be increased by spending cuts not tax increases. This sure seems to indicate a desire to get to no.
So what happens next ? A key issue and key cost of default for Greece is that the European Central Bank (ECB) has been loaning and loaning to Greek banks as Greeks take out their Euros while they can. It is entirely possible that Greek banks won't be able to open Monday. A default (scheduled for Tuesday) would almost certainly cause the ECB to cease to help Greek banks. It seems likely that Greece faces at least a banking holiday. This would cause great suffering directly and further decline of production.
I think at that point, Greece is much better off reintroducing the Drachma and declaring that references to the Euros in contracts are to be replaced with references to (some initial exchange rate) drachmas. The cost to Greece of Grexit would have been a financial crisis. If they have a financial crisis Monday anyway, they might as well regain monetary independence and devalue. I don't see any point in Greece promising to pay its debts to official creditors in Drachmas. They can't accept that (or every country with foreign currency denominated debt would redefine their debts) so simple default seems better for everyone.
My ignorant guess is that the crisis won't spill over to other countries (I'm not trying to empty my Italian bank accounts).
* update: I see that Matthew Yglesias says that Tsipras's best strategy is to fold 'em. I think that it might have been a wise move to accept the extreme undemocratic Eurodemands, but it is too late for Tsipras to do that. The question is what would happen next were Tsipras to announce that the referendum has been cancelled and he is accepting the deal. I think it very unlikely that enough Syriza MPs would accept this for the current coalition to survive. I think Tsipras would have to do a Ramsey MacDonald and try to form a unity government with the former opposition as in "the Labour government was split by demands for public spending cuts to preserve the Gold Standard. In 1931, MacDonald formed a National Government in which only two of his Labour colleagues agreed to serve and the majority of whose MPs were from the Conservatives. As a result, MacDonald was expelled from the Labour Party, which accused him of betrayal." MacDonald is still very much loathed by the few who remember who he was.
Tsipras the traitor would not be useful to the new coalition -- a leader with a history of bluffing and folding is not valuable. I don't see how a second Tsipras government could last.
I think that folding might conceivably be a good strategy for Greece, but I don't see how it could be managed. Another even grimmer historical analogy would be the Franco-Prussian war in which the French were defeated in six weeks then spent three months futily attempting to surrender.
In contrast, the experiences of countries which default isn't so horrible. I am thinking of the cased of Iceland, Russia and Argentina. Argentina didn't even entirely have its own currency. Countries considering default are threatened with terrible things, but International Finanz Kapital is not a united agent -- in practice foreign banks do business with countries which have defaulted. Default is associated with horrible economic suffering, because countries endure horrible suffering while trying to avoid default. I can think of these three cases when default was preceded by horrible recession and followed by rapid growth. I think default is the least bad remaining option for Greece. ** update 3 "(represented by the Eurogroup)" deleted -- Greece is part of the Eurogroup which (officially) therefore isn't Greece's bargaining counter party.