Despite all of the tough talk, observers know the simple truth; a Greek default would start a market panic. No one wants to be responsible for that. Politicians want to keep their jobs, and banks want to remain solvent.
The Germans and their “hawkish” Bundesbank have already allowed the Bank of Greece to print money this month to have enough on hand to pay back the ECB for a €3.2mm loan and run the government until September.
Germany will ultimately approve a 3rd Bailout for Greece, but it will not be called a 3rd Bailout. It will be dressed up as a renegotiated 2nd bailout or something like that, because this is politically more palatable.
While Merkel has the political juice to keep draining her country of money, it is a different story for the other Northern countries. How long before Finland or the Netherlands decides to return to it national currency to avoid hundreds of billions of euros in liability for the failing countries?