The Greek crisis, which occasioned the first troika programme in the eurozone in May 2010, was a long time coming.

Greece has unfortunately suffered from serious economic mismanagement for decades and the 2010 bailout followed the revelation that both government borrowing and debt had been deliberately understated by the Greek authorities.

The new Greek left-wing government argues that the first bailout was botched and they have a point. There should have been a debt haircut from the beginning, but it was resisted by Greece’s European partners and the International Monetary Fund (IMF), unwisely, went along.

This was a victory of hope over experience and it duly came apart, resulting in the debt default on private holders of Greek bonds in 2012. This delivered €100bn in debt relief to Greece, but it was not enough and the Greek economy has seen the largest contraction in output of any eurozone member with the highest unemployment and social distress.

The new Greek government is running out of cash. It faces debt repayments in the period immediately ahead which it will not be able to finance without forbearance from its lenders. This means essentially the ECB and the eurozone member states.

Most of Greece’s debt is due to official lenders, not to private investors. The IMF cannot offer debt relief under its long-standing procedures, so the key lenders are the eurozone and the ECB.

The latter body has already signalled its intentions through declining to accept Greek debt as collateral for lending to banks. The crisis could reach the endgame very quickly – the ECB council was due to meet on Wednesday 18 February, after this column was written.

They can at any time forbid the Greek central bank from extending emergency liquidity to Greek banks, to replace deposit outflows, at which point the system collapses and Greece could be forced out of the euro.

I could be proved wrong by the time you read this, but the ECB council would be pre-empting the political process were it to pull the plug prematurely. The logical thing to do is to let the clock run down and leave space to the politicians to fashion a compromise.

A compromise is possible. The Greek budget is more or less balanced on an ongoing basis and there is room to modify the terms of debt repayment. Ultimately, the ability of Greece to service its debts depends on the performance of the Greek economy and that in turn depends on wide-ranging reforms which will take many years to bear fruit.

The eurozone leaders at this stage seem unwilling to make another act of faith in Greece. It is thus possible that the negotiations could end in tears with a Greek exit from the eurozone, widely regarded by economists as a bad outcome for Greece and a dangerous path for the common currency.

It is sometimes argued that a country leaving the euro has to establish a new currency from scratch. Actually the potential new currency already exists, in the form of the domestic liabilities of the Greek banking system.

If the ECB declines to act as lender of last resort to the Greek banks, and forbids the Greek central bank from doing so, the government would have to introduce capital controls, restricting withdrawals and transfers as happened in Cyprus.

At that point, a Greek euro becomes less valuable than a euro anywhere else and, hey presto, there is a new, devalued, currency. This almost happened in Cyprus, but there was a last-minute deal.

The game being played out in Athens, Brussels and Frankfurt is a dangerous one. An unplanned Greek exit consequent on the disappearance of central bank liquidity would immediately raise questions about the stability of banking systems in other member countries and about the riskiness of their government bonds.

The ECB will be anxious to avoid another accusation that they have been instigating bank runs and will wish to let the politicians take the heat. The politicians have a proven capacity to blunder and delay.

There should be some sympathy for the Greek predicament. There is no irresponsible borrowing without irresponsible lending and it is clear that the first Greek bailout in May 2010 was botched by the official lenders.

Responsibility

They have yet to take responsibility for that particular fiasco, the debut performance of the ECB and the eurozone politicians in crisis management.

The new Greek government has been slow to come up with a credible reform programme. The election was won on a platform of re-hiring public servants, delaying privatisations of inefficient state enterprises, unfunded public spending commitments and other populist evasions.

There is a deal to be done – serious reform in exchange for less onerous debt repayment obligations.

The alternative is a train wreck for Greece and enhanced risk for the common currency.