For more than five years, Greece has depended on global largess to keep its economy from sinking. Since the revelation in October 2009 that the Greek government had been understating its deficit figures for years, Greece has received about $310 billion in two bailouts from the European Union and the International Monetary Fund (IMF).

On Tuesday, it failed to make a scheduled $1.7 billion payment to the IMF on those loans, making it the first developed country to default on a loan from the aid agency. It has been forced to control capital, closing its banks and limiting ATM withdrawals to prevent a run and keep a wave of currency from leaving the country. Needless to say, that has heightened the tension.

The main crux of the problem is that, like most of these types of loans, the money came with conditions.  They ranged from pension reductions to tax reform and spending cuts. Needless to say, Greeks haven’t been thrilled with cuts to their quality of life and that helped sweep the leftist Syriza party to power. The Syriza  Prime Minister, Alexis Tsipras, promised to get a better deal for the country.

 Unfortunately for Tsipras, while euro zone finance ministers have been willing to deal, the rest of Europe hasn’t been willing to simply give Greece the money it needs without reforms in return.

Greece isn’t the only European nation with barely sustainable debt levels, so you can hardly blame the EU for demanding reforms. While Greece is somewhat unique in that its government debt as a percentage of GDP is currently around 175%, much larger countries like Spain, Portugal and Italy have debt ratios of more than 100%. They too have needed assistance and might need more, so if they see Greece get off the hook they might try to make the same play.

Bailouts of those bigger countries would be much more expensive and risky, and pose an existential threat to the EU.

The EU itself is also in a tough spot since it doesn’t actually want to see Greece leave the union. Aside from the economic upheaval a Grexit could create, a country leaving the euro zone would represent a political failure no one is anxious to see. While the EU framers acknowledged that it was possible a country might one day want to need to leave the union, they didn’t actually include provisions for that possibility in the treaties which form the EU.

When you come down to it, it would be better for everyone if an amicable solution can be reached.

At this point, everyone is anxiously awaiting a Greek referendum scheduled for Sunday, when Greek voters will be presented with a “Yes-No” vote on the bailout. Negotiations are essentially on hold until that vote occurs, with Greek government encouraging its people to vote “no” while the rest of Europe pushes for a “yes” vote. If the Yes’s take it, Greece will likely accept many of the demands made by creditors (and probably bring an end to Syriza’s control of the government), while victory  for the No’s will trigger act three (or is it now four?) of the Greek drama.

While public opinion polls show that most Greeks want to remain in the EU, right now it’s tough to handicap the vote’s outcome. Now that the situation has become about as political as it is economic, it’s anyone’s guess how things will ultimately shake out.

That said, our Global Income Edge portfolios don’t carry much in the way of Greek exposure since more than half of our positions are U.S.-based companies or have limited operations in Europe.

Our Investments

As we saw earlier this week when the markets wobbled on the news that Greece was in trouble, a Grexit would certainly cause a jump in volatility and impact most markets. But none of our holdings have any major operations in Greece, so short of Europe imploding, business will largely go on as usual. So we think the best thing we can do is to wait and see how the referendum goes and what sort of deal is reached.