There’s nothing that can throw cold water on irresponsible populist rhetoric than cold hard reality staring you in the face.  It looks as though we are seeing this happen in Greece as we speak.  Faced with imminent default, the Greek government stated over the weekend that they would pay their debts owed to the European Union.

With a conciliatory tone,the Greek Prime Minister said this, “The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.”  In other words, Greek is looking to walk back some of the inflammatory comments after the election that caused Greek markets to tumble and drastically increased the market’s perception that Greece will not pay its debts.

The Greek situation is the biggest tail risk out there that could cause material volatility in currency markets.  The problem is, it could go either way.  If Greece swallows the red pill and refuses to abide by previously negotiated agreements, the tiny country would become the first domino in the destruction of the Eurozone as we know it today.  Spain, Italy, and possibly others are watching with baited breath to see what happens as they would be right behind Greece in demanding their debts be forgiven or renegotiated.  Then all bets are off and there will be unintended consequences in currency markets around the globe.  The dollar will spike further.

In this scenario, the Greek banking system would be decimated and economic chaos would ensue.  Possibly Greece could use a massive default and exit from the Eurozone to make drastic reforms and give themselves a fresh start for a prosperous future.  Don’t count on it.  Most likely, the corruption and march to a full fledged kleptocracy would continue unabated.  Russia would most likely step in to provide aid and encourage Greece to join the misfits of Putin’s Eurasian economic union.  The future would be bleak.

The most likely scenario is for Greece and the troika to come to some type of agreement to muddle forward and continue the misery for the Greek people and most likely Europe in general.  The Euro will continue to be vulnerable to weakness as the threat of Greek default will remain on the table for years to come.  Greek debt will grow.  Greece will not reform its society in order to make its economic model viable.  This has been the problem from day one and no amount of money lent or forgiven by the Germans can change this.  At the end of the day it is a cultural problem.  Germany and Greece are different.  Germans work hard and are fiscally conservative.  Greeks don’t want to be.  (of course there are exceptions)

Of course the leftist government in Greece does have some friends in Europe.  The socialist French finance minister said today that the Greek effort to renegotiate was “legitimate.”  Perhaps the French want to get in line to renegotiate their massive debt as well.  So with the European Central Bank gearing up to print gazillions of Euros to prop up the moribund European economy, one thing is for sure.  Since Europe won’t deal with its underlying problem of socialistic governance, Europe is doomed to no growth and even a possible deep recession.  Perhaps the euro will become the new carry trade.

L.Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt.  He is a contributor to Fox Business,  Newsmax TV, and others.