PS21 Insight: With Greek vote, euro reaches crunch point First question is whether ECB will continue to support Greek banks Greek Eurozone exit would completely undermine concept of the single currency Contagion might well spread to other troubled Eurozone economies causing new bank runs and spiking borrowing costs "Fundamental deficiencies" all Eurozone project now exposed, must either be rectified or project may unravelOn Sunday, July 5, Greece rejected Eurozone bailout conditions in a referendum. Below is a selection of comments from the Project for Study of the 21st Century (PS21).Sir Michael Leighis senior adviser to the German Marshall Fund of the United States. He was Director General for Enlargement for the European commission from 2006-2011. From 2003-2006 he was Deputy Director General for EC External Relations. He is a member of the PS21 International Advisory Group.Peter Appsis executive director of the Project for Study of the 21st Century. He is currently on sabbatical from Reuters where he was global defence correspondent after previous assignments covering political risk as well as emerging markets.Please credit PS21 if you wish to use any of the material below. If you wish to contact us to speak to any of our advisors or Global Fellows, please e-mail PS21Central@Gmail.com.Firstly, the core Eurozone countries and the European Central Bank in particular must decide if they will continue forcing the Greek banking system.Leigh:The first priority is for the European Central Bank to decide quickly on maintaining Emergency Liquidity Assistance (ELA) to the Greek Central Bank. This may mean raising the ceiling on such assistance. ELA will keep the Greek banking system afloat while negotiations are held on a new bail-out package.Provided these negotiations succeed quickly and there is a new agreement in place involving serious reform commitments by Greece and acceptance of further debt reduction by the creditors then there is no reason for the Greek banking system to collapse or for Greece to leave the euro. This would occur only if the ECB pulled the plug on ELA or if rigidity on either side prevented a new agreement from being concluded.Apps:While the referendum has produced a resounding "yes", it's not exactly clear what the Greeks have voted "yes" to. There's no doubt that it is not in itself a vote to leave the eurozone. But they can't carry on without external support -- the banking system will collapse, everyone will lose their savings and they wind up crashing out of the currency.Essentially, Greece has torn up the bailout conditions and wants a better deal. The rest of the Eurozone now has to decide whether to meet them -- and what they will do in the meantime while Europe's leaders make up their minds.If Greece's banks are not supported and no further bailouts negotiated, Greece will be unable to pay public sector wages later this month without issuing some kind of IOU or new currency. This might, as some have long feared, spell the beginning of the end for the euro.Leigh:If Greece were forced out of the euro this would call into question the irreversibility of the currency union. It would then appear to be no more than a system of fixed exchange rates that can be altered whenever a country faces a severe liquidity crisis. The next time a eurozone country faces such a crisis this would spark fears that it too might be forced out of the euro. At a time when Europe is facing so many challenges, the creditors, led by Germany, are likely to go to considerable lengths to prevent this from happening.Apps:The Greek crisis has never been just about Greece. It's always been about giving Greece a tough deal to make sure the other larger fringe Eurozone economies go through with their reforms. And also about maintaining enough confidence that the Italian, Spanish and Portuguese banking sectors don't unravel as well.If the wheels come off in Greece, the real question is whether it looks so grim that people start withdrawing their savings from banks in other countries that you could also imagine leaving the euro on a bad day. That could become a self-fulfilling prophecy very quickly.It's also worth watching the borrowing costs of banks in those countries. They will probably need additional support from the ECB.The euro has reached crunch point.Leigh:If the ECB continues to provide liquidity to the Greek Central Bank and if a new bail-out agreement is reached, the edifice will not crumble over the summer. However, there are fundamental deficiencies in the governance of the euro which threaten its sustainability, in the medium term. Without fiscal transfers--that is, genuine solidarity among eurozone members--the euro will not last. However, Germany and other creditor countries are not ready for this. Perhaps the Greek crisis will finally start to make them face up to realities instead of continuing to extend and pretend.Apps:If Greece leaves the single currency, it will be a colossal deal for Greece. If the entire single currency unravels, it might be the most significant event in European history since World War II, perhaps even more significant than the fall of the Berlin Wall and collapse of the Soviet Union.In holding a referendum, the Greeks have indeed injected a measure of democracy into what had been a very very bureaucratic and elite-led process. And they've made it clear just what they think of that.The other side of that, though, is that the German electorate in particular is also fed up. It's not clear that that can be squared. And if it can't be, we're in for a very interesting summer indeed.