After months of acrimonious negotiations, and despite a significant rapprochement between their position and their creditors’, the Greek coalition government has unexpectedly stopped negotiation discussions in their tracks, announcing a snap referendum for Sunday, July 5th, over the proposed deal with the EU.

It’s a puzzling move. The Greek government’s own proposal to creditors had included 8 Billion Euros in extra measures — eight times the amount agreed to by the previous government in December. Positions between the two parties seemed small. After bruising, protracted negotiations a deal seemed to be on the cards. The Greek side hadn’t intimated a referendum might be needed, and, even if it were, it would have had to happen on June 29th at the latest, since the current bailout program was due to expire on June 30th.

Unsurprisingly, the position the EU has not changed: Greece has until tomorrow to comply. The ECB, while keeping Greek banks afloat, has not provided them with fresh cash through the ELA mechanism. As a result, the Greek government has declared a week-long banking holiday and has announced capital controls to be implemented thereafter. The Athens Stock Exchange is also to be shut today. Grexit looms over the horizon. Panic is taking hold.

This outcome illustrates the extent to which party politics rather than the country’s needs drive decisions in Greece. It also shows just what happens when you give power to a government which consists of activists, politicians, and academics with little policy or other work experience. The PM has not had any career outside politics. Only the deputy PM has had ministerial experience — a quarter of a century ago. And useful as activists may be in a democracy, the Greek experience suggests they don’t make for very practical crisis managers.

Under the current government, tax collection has stalled; investment all but vanished; consumption has suffered; the state has been able to continue paying salaries and pensions only by not paying its private suppliers and contractors; liquidity has been drained from the financial system; and gratuitous measures have been taken such as freeing terrorists and abolishing high security prisons, much to the dismay of Greece’s allies in the US.

More disconcertingly, for all the talk of social equity, there has been no pushback against media barons, who broadly supported the new government; no change in the tax-evasion front; and no real improvement on social welfare. And now a referendum that pushes back the responsibility for making a deal on to the Greek electorate only because the Syriza and Anel MPs realize that they are trapped by their earlier promises to voters, and can’t accept the deal with the EU without breaking those promises.

But this referendum it isn’t just about choosing between a deal with the EU and Grexit. It’s also about about Greece’s future in the EU. It will be hard to see how other EU countries would continue subsidizing Greece (a net recipient of EU funds) after it defaults on its debt. And, more important still, it’s about the future of Greece and the nature of its economy.

What will that future be? Outside the EU, Greece’s prospects look bleak, as:

Vested interests take over. The previous bailout program failed to provide sufficient pressure to open up the Greek economy. Greece has yet to allow free competition in most professions, to remove the regulations and bureaucratic obstacles that hinder new business, and to reduce the power of small and large state protected oligopolies. Vested interests have managed to remain intact and for all the Tsipras government’s bravado of hitting the oligarchs, media barons’ empires remain intact while a tacit collusion has quietly been substituted for the cries for reform. Without EU pressure, it is doubtful that a compromised, often inept, sometimes corrupt political establishment will change this.

The quality of public administration deteriorates. The new government has already made some worrying decisions. The panels set up to investigate corruption cases, for instance, won’t be comprised of judges only – the unions will also have a seat at the table. The new law on education allows the ministry of education to dispense with evaluating teachers. Shielded from EU pressures and armed with a populist agenda, public service will find it easy to revert to its old ways.

The banking system collapses. The (reorganized) state-owned banks, stuffed with inflationary Drachmas, will likely revert to lending practices of the 1980’s, when party favors were repaid handsomely by allocating credit, a scarce commodity.

The bottom line is that away from the EU, Greece will slip ever further into an economic abyss, characterized by rising income inequality and poverty. This is where most economists, who consider the upsides (for Greece) of a Grexit, have it wrong. The country’s failings are structural, not just fiscal. Default and Grexit will only aggravate those structural failings, not only immediately, but also in the medium-term. And having a failed state in such a pivotal geographic location as Greece’s poses significant geopolitical risks.

Who will pick up the pieces in Greece if the electorate votes against the deal? The Greek ministries have lost many of its more experienced civil servants and lack the depth of skills that governments in other countries, such as Britain or France, can rely on. Cabinet secretaries are failed politicians with no expertise or interest in their positions and many are more familiar with TV studios than their portfolios. Without a reliable cadre of civil servants, an administration that shows little competence in running its day-to-day affairs will surely struggle to cope with a change of currency, potential bankruptcy, and geopolitical reorientation.

The Greek referendum isn’t just about the deal or even the Euro. It’s about the stability of Europe, which has been endangered by irresponsible politicking. Yet the political response in the EU and in Greece may forestall disaster, provided that Greek voters choose wisely. A strong “yes” vote, presumably accompanied by a government change in Greece, could pave the way for shifting attention from the symptoms of the crisis to its underlying causes, showing that Europe can act as a real Union. But obtaining a strong “yes” vote requires that voters get both a clear articulation of what the referendum is about and a week of patience from the creditors. I can only hope the voters get what they need. The consequences of a “no” vote are too awful to contemplate.