The creditors have been unhappy with the debtor's business plan, which fails to generate any cash flow for debt service, and after months of negotiations, have lost confidence in management. They hoped that the management would be replaced, but management instead sought an exclusivity extension. The creditors objected, stating that the existing management was incompetent, as proven by the fact that revenue has gone down precipitously since management took over, and yet management refuses to take steps to bring costs in line with the reduced revenue. Similarly, management has declined to sell assets (i.e., privatize) to generate cash to fund operating losses. Nevertheless, the judge hearing the exclusivity extension, (i.e., Greek people) had a pro-debtor bias and granted the management the sought-after extension. As we know, such orders are non-appealable.
Having won this procedural victory, management still confronts the same substantive problem: no money. It is an iron law of life on this planet. You cannot indefinitely consume more than you produce, unless you steal from someone else. If you borrow in one year to fund consumption, thereafter you must include the resulting debt service in your expenses, and you either have to reduce consumption, reduce investment, liquidate assets (like privatizing ports or pumping out your oil reserves) or produce more than the year before. If a nation borrows to fund investment, and invests wisely, it may be able to generate additional returns that service the debt. But borrowing to fund consumption is by definition unsustainable over the long-term. Which is why Greece is where it is.
So the debtor needs a DIP loan. To do that, it has to produce, yet again, a business plan and cash flow projections. First, it has to show it will change its way of doing business to begin to generate positive cash flow. These are called "structural reforms" in sovereign debt parlance. Second, it has to project the cash flow that will result from those changes, using assumptions the creditors find reasonable. Third, it has to show how much of that cash flow it will allocate to service the DIP loan and as much of the pre-petition debt as is feasible. For example, the creditors want to reduce the amount of cash flow that is being siphoned off to maintain the status quo of unproductive sectors of the economy, like nonworking people who are still able to work.
Will Syriza do this? It is strictly a matter of political will. The most hopeful scenario is that, with this big electoral victory, Tsipras now has the political capital to cut the final deal. The creditors can give him some more concessions, particularly writing down the debt which is unsustainable anyway, and in return he can accept more of their reforms, and they go on harmoniously, each side saying they got something more than when negotiations broke off. In this context, the resignation of Varoufakis, the embarrassment he appointed as Finance Minister, is a hopeful sign. And all politics is local - now that his local status is solidified, Tsipras can face up to the reality of the larger problem.
I just don't know if Tsipras is that rational. So far, he seems to be as mercurial as any national leader in history, one day purporting to make concessions and the next rhetorically destroying the environment for reasonable negotiations. It's like he studies Richard Nixon's strategy in negotiating with Ho Chi Minh.
The other concern is that, to the extent the rest of the EU in any way is seen to ratify Tsipras's strategy and tactics, that strategy will be re-enacted in the other low-productivity EU nations -- like Spain, particularly, where Podemos has already won many local elections recently and is consistently #1 or #2 in the polls for their November elections for national office. But Italy and Portugal and even Ireland won't be far behind. Once the norm of debt repayment breaks down, there isn't any logical stopping point. So the creditors have to weigh the prospect of a rolling wave of debt repudiation cresting higher and higher if they work things out with an ultra-left Greece.
If the negotiations of a consensual, going - concern reorganization doesn't work out, then we will see the sovereign equivalent of a chapter 7. The banking system and the government coffers will literally run out of euros in the next few days. Not just banks, but stores, businesses, government offices, will all shut their doors, as happens in a 7. Yes, some parts of the country will continue to operate but massive amounts of GDP will cease to occur. I don't think they can create a new currency fast enough to avoid this problem.
And behind all this,there is the threat of further military incursions by Russia into places like the Baltic nations, which calls for as united a Europe as can be achieved.
Angela Merkel has to be the George Washington, Abraham Lincoln and Alexander Hamilton of Europe, all at once, and all this month. She has her work cut out for her.