The No vote to austerity by a margin of 62 to 38 is a stunning vindication of Greek Prime Minister Alexis Tsipras's tactical gamble and political savvy. However, the Greeks and the austerity-mongers, most notably in Germany, remain as far apart as ever.
The press and the European financial elite played Tsipras's surprise referendum as reckless and suicidal. Much of the E.U. establishment was savoring a Yes vote, a Tsipras resignation, and a new center-right unity government as enablers of austerity. But Tsipras demonstrated that he has a far surer grasp of his own people than the Berlin-Brussels echo chamber.
The elite press has tended to play this tragedy as a case of Greek self-destruction. The larger story, in truth, is the self-destruction of the European Union.
In the short run, the Greek No vote has smoked out the true goals of the worst of the austerity faction such as German Finance Minister Wolfgang Schäuble -- to force Greece out of the Eurozone. Schauble, abetted by much of the financial press, tried to redefine the referendum as a vote on whether Greece should keep the euro.
But that gamble only backfired. Greek voters resented the interference with their democracy. The referendum was never about the euro, but about whether to accept crushing and perverse austerity terms.
For five years, the outlines of a sensible deal have been clear. Greece needs massive restructuring of its debt, as well as a partial debt write-off. This is what occurs in an ordinary bankruptcy, when debtors cannot repay creditors but the entity cannot simply be liquidated.
In return, Greece needs to reform aspects of its economy and government, including its tax administration system. But that project would be so much easier and more effective in the context of a recovery program as opposed to a debtors' prison. Imagine if the Europeans came bearing genuine technical assistance, investment capital and debt restructuring as opposed to more austerity demands.
To put the Greek crisis in context, consider the debt relief and credit support given to post-Nazi Germany by the Allies, who wrote off 93 percent of the Nazi era debt in the early 1950s and stretched out the pre-Nazi debt incurred during World War I and the Weimar period well into the 21st century.
Whatever fiscal sins Greece may have been guilty of, they don't hold a candle to the crimes of Hitler -- which include the death by starvation of hundreds of thousands of Greeks in occupied wartime Athens. The irony of Germany, of all nations, being the enforcer of the destruction of Greece is mind-boggling.
Or consider the many hundreds of billions of dollars of official aid that went to the big banks that caused the financial collapse of 2007-2008. Their sins, and the resulting damage to the global economy, were far worse than those of Greece. Yet they were showered with official aid. That double standard is also staggering.
The latest turn of events has thrown into relief several key failures of the European Union. As a confederation and quasi-governmental entity, the E.U. requires something close to unanimity, or at least strong consensus, to make key decisions. When it fails to achieve consensus, the E.U's default setting is more austerity.
The Greek crisis has demonstrated how deeply divided are the leaders of the E.U. and its most powerful member nations. Some, such as the French President Francois Hollande, are open to softening the terms of Greece's debt. On alternate Thursdays, so is the head of the European Central Bank, Mario Draghi, who can't quite bring himself to allow the destruction of the Greek banking system.
But the Germans are increasingly vindictive, and inclined to block a deal. And so a protracted crisis continues, in which the Greek economy keeps being dragged down, while emergency aid doled out by the ECB keeps Greece just out of explicit default.
A second fatal split is in European social democracy. Since 2008, the European center-left has disgraced and discredited itself by failing to oppose austerity. It has taken further-left upstart parties, such as Syriza in Greece and Podemos in Spain, to articulate the popular revulsion against eight years of deliberate, administered depression.
The German Social Democrats, rather than serving as a counterweight to Merkel and Schäuble, have piled on. Sigmar Gabriel, leader of the German Social Democratic Party and economics minister in coalition with Chancellor Merkel, declared that new negotiations were impossible after the No vote, insisting that the Greeks have "torn down the last bridges on which Greece and Europe could have negotiated a compromise."
Martin Schulz, a German social democrat who serves as president of the European Parliament, said that a No vote would mean that Greece would have to leave the euro. No wonder the Social Democrats keep losing elections all over Europe. Ordinary people are hurting, yet social democratic parties are the caboose on the austerity train engineered by conservatives.
Other social democrats, such of Gianni Pitella, president of the Social Democratic bloc on the European Parliament, have called for debt relief for the Greeks. But the center-left is sure sending mixed signals.
Is there no way out of this mess? The one potential bright spot is the partly dissident role of the IMF as abetted by the Obama administration. In a report released Thursday, the IMF concluded that Greece needs at least 60 billion euros in new financing, and called for a doubling of the maturity of Greek debt from 20 to 40 years.
Key European leaders sought to block or delay release of the report, which tends to vindicate the Greek position, but these efforts were thwarted by the Obama Administration, which has been pushing for a compromise. The best hope is that the IMF -- nominally part of the "troika" of Greece's creditors but more realistic than the Germans and the European Commission -- will break more openly with the austerity camp.
At this point, Tsipras's hand has been strengthened, and talks will resume Monday night or Tuesday. However, the risk is that we will see a "compromise" of kinder and gentler austerity that pulls Greece back from the brink of catastrophe -- but continues the drip-drip-drip of temporary aid rather serious debt relief. That would just continue the Greek tragedy.
The stakes, however, are larger than Greece, as Europe enters its eighth year of stagnation. Though politicians like Scheuble have been all too ready to jettison Greece to purify fiscally austere Europe, it's increasingly clear that the E.U. needs to change course -- not just to save Greece but to save itself.