What’s the Worst Case Scenario for the Greek People?

As Greeks prepare to go to the polls on Sunday June 17, the fate of the euro and the recovery of the global economy could rest in their hands. But the biggest pain could be felt closer home as the country suffers through a fifth year of recession.

The Parthenon, illuminated at night, sits at the top of Acropolis hill in Athens, Greece, on Monday, Feb. 13, 2012.
The Parthenon, illuminated at night, sits at the top of Acropolis hill in Athens, Greece, on Monday, Feb. 13, 2012.

Many people have been voting with their feet and leaving the country, with austerity measures forcing some to work on half their previous salaries, while pension cuts and an impending energy and health crisisunfold.

For those that remain, unemployment is on the rise at 21.7 percent (youth unemployment is now at 50 percent), and of the people that still have jobs, some have not been paid in months.

Greeks that can no longer afford to buy food (let alone stockpile it) are turning to soup kitchens that are providing a temporary solution. The 76 of them in the Athens region alone receive up to 20,000 people a day queuing for food. In the extreme, the surge in suicide rates among all age groups show that some feel there is no hope.

With the situation this dire, it’s a sobering thought to consider that after the elections economists say things could get a lot worse, should Greece leave the euro zone. In May, Greece’s former finance minister George Papaconstantinou said of his country’s predicament: "there are no easy solutions.”

“Either we stay within the framework we have all agreed or we tear it up, in which case, we have a complete and utter catastrophe,” he told Sky News.

Polls just days ahead of Sunday’s elections show that Greeks are torn between staying within the framework and paying the price that it requires. Leftist, anti-austerity party Syriza is running neck and neck with conservative pro-bailout New Democracy.

Both parties say they will seek a renegotiation of some, if not all, of the bailout terms, making Greece’s prospects of staying within the euro zone even more uncertain.

Do Greeks Know What They Want?

A report by the Bank Sarasin economic research group released on Thursday suggests that there is a “conflicting picture” of pro-euro and anti-bailout sentiment in Greece ahead of elections on Sunday.

Dr. Jan Amrit Poser, Chief Economist and Head of Research at Sarasin, reports that 70 percent of the Greek populace wants to throw off the yoke of austerity, to renege on bailout terms and default on government debt and 70 percent of people polled wanted to remain in the euro, a contradiction Greeks might not understand, according to Poser.

“Unless Greek voters understand that both options do not go together, Greece and the Troikaof IMF/EU/ECB are headed for a confrontation, which could end in the Troika pulling the plug and stop [sic] cash payments.”

Economists CNBC spoke to fear that attempts to renegotiate the EU bailout package could fail, leading Greece to default and leave the single currency. A scenario of anarchy could unfold, with cash shortages and the non-payment of wages leading to the possible “radicalization of Greek society” and “[civil] unrest”, according to Sarasin’s report.

Keith Wade, Chief Economist at Shroders, told CNBC Europe’s “Squawk Box” on Friday that Greece’s fate depends on how the new government treats the EU.

“The key thing now seems to be, after the election, the renegotiation of the bailout package… if New Democracy wins we can expect a more conciliatory tone and if it’s Syriza, it will be difficult. But I think whichever party wins, it’ll be a really difficult decision for the Troika as to whether or not they’re prepared to renegotiate these bailout terms at all.”

Economist Joerg Kraemer, Chief Economist at Commerzbank, told CNBC that should a confrontation over the 130 billion euro bailout lead to an impasse with the EU, “an outright default would only be a matter of weeks” leading to a Greek bankruptcy. “The payment morale in the Greek private economy would [then] collapse and the Greek economy would break down," he said.

Default Likely by August 20

Christoph Weil, Director of Economic Research at Commerzbank, told CNBC that if the Troika refuses to pay a second tranche of bailout funding “another default would then likely happen by 20 August and banks would be shut out of ECB funding.”

“The government could first resort to increased issuance of IOUs to pay domestic bills, effectively introducing a parallel currency. With capital flight difficult to be constrained, however, the introduction of a new currency by year-end would be likely. Bankruptcy would cut off foreign capital to both the state and the private sector,” he said.

Should this happen, Weil says an entire collapse of Greece’s economy, banks and social provision could occur.

“The country could only import whatever it could pay for from exports and at the same time, the state would be unable to pay wages and pensions in full...On top of this, the banks would fail, and in the short term at least, the Greek economy would find itself in a state of chaos.”