After "no" vote, Greece needs a "yes" from Europe

Greek Prime Minister Alexis Tsipras is heading into Tuesday night's emergency meeting of the 19-member eurozone with an unenviable task. He'll have to convince his skeptical neighbors that he's willing to take the politically unpopular steps needed to secure the financial bailout his cash-strapped country desperately needs.

Tsipras is under pressure to reform Greece's pensions, address rampant tax evasion and break up the country's bloated state sector. However, Greek officials didn't offer any new specific proposals at a Tuesday afternoon meeting of eurozone finance ministers. They're now expected to unveil their latest offering either Tuesday night or on Wednesday, when another finance ministers' meeting is scheduled.

Tsipras, who was elected on an anti-austerity plan, had stunned many observers by calling for a referendum on Europe's last bailout proposal, which was already off the table by the time of Sunday's vote. Observers were further surprised that Greeks voted "no" by a 61 percent majority.

"The referendum has made the political situation in creditor countries much more difficult," said Christian Odendahl, chief economist at Centre for European Reform, a London-based think tank, in an interview with CBS MoneyWatch.

Experts have faulted the Greek government for the worsening financial crisis by bungling the negotiations with creditors. Many, though, agree with the Greek government's view that its debt is unaffordable and needs to be reduced.

"The deal looked imminent," said Nicholas Economides, a professor of economics at New York University's Leonard N. Stern School of Business in an interview with CBS MoneyWatch. "That's why nobody expected that there would be a referendum. Now as a result of the referendum, the prime minister feels emboldened."

Tsipras benefited from a feeling among Greek citizens that after suffering through years of austerity, they don't have anything to lose. Still, his support could crumble, particularly if he's unable to secure a deal before July 20, when Greece's 3.5 billion euro ($3.9 billion) payment is due to the European Central Bank.

If that bill goes unpaid, the ECB will cut off the aid it has been giving Greek banks that has kept them afloat. Greece skipped a $1.7 billion payment due to the IMF last week, which cuts off further help from that organization. The country's European bailout package has also expired.

U.S. investors have watched the events in Greece warily. After trading around 200 points lower at noon on Tuesday, the Dow industrials recovered all that and more, closing up by 93 points, at 17,777. The S&P 500 also rebounded from deep early losses to end the day 12 points higher, at 2,081.

Economists have likened conditions in Greece to the Great Depression in the U.S. Unemployment there tops 25 percent, and the country's banks have been shuttered for more than a week. Greek citizens can withdraw only 60 euros ($67) per day, though pensioners have been allowed to take out more money from time to time.

Worries, though, are mounting that banks may run out of cash, particularly since the ECB hasn't increased the level of support its providing to Greece's financial institutions.

Although the Greek economy is a mess now, there was plenty of optimism a year ago when the country ran a surplus and reported the highest economic growth rate in Europe, according to Economides. Unfortunately, the Greek government failed to trim its bloated state sector.

Now, Greece's future is bleak even under the most optimistic of scenarios.

"What is left for Greece are two doors: Hell 1 or Hell 2," wrote Roberto Rigobon of MIT's Sloan School of Business, in an email to CBS MoneyWatch. "Hell 1 is a prolonged recession, where the creditors feel cheated and hence quite unwilling to help the process of reconstruction. ... This scenario would involve some form of deal with debt reduction. ...Hell 2 is to leave the euro, have a massive depreciation and inflation. But at least unemployment would improve."