In Athens Wolfgang Schaeuble has been labelled a “bloodsucker” and a “Wanted” poster has appeared showing him with a Hitler mustache.

He may go down in history as the man with a Grexit plan.

He was behind a proposal to offer Greece a five-year “time-out” from the eurozone if no credible bailout could be agreed.

The final deal sets out a strategy to keep Greece in the euro – and the Grexit plan was not on the eurozone ministers’ agenda. Ms Merkel said Grexit would only be an option if Greece had asked for it, but Greece insisted on staying in the euro.

Under Mr Schaeuble’s plan, Grexit would make it possible to give Greece large-scale debt relief – something that would not be in line with current eurozone rules.

In the end, the overriding priority of keeping the eurozone intact trumped any talk of Grexit.

There were frayed nerves in the hours of tough talking. At one point, reports said, Mr Schaeuble snapped at European Central Bank chief Mario Draghi: “Do you take me for a fool?”

The bruising summit forced Mr Schaeuble to give some ground – there are now plans to extend Greece’s debt repayment schedules. And many believe that billions of euros owed by Greece will never be recovered.

According to Greece’s ex-Finance Minister Yanis Varoufakis, Mr Schaeuble wanted Greece to be “pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone”.

US Secretary of State John Kerry announced a deal with Iran.  While the US Senate still has to approve, it is likely that opening Iran is finally on track.  The west got conditions for building trust around the verification of nuclear materials.  Sanctions against Iran will be dropped.

Saudi Arabia is not happy, because they want to continue to control military affairs in the area.  Israeli PM Netanyahu feels betrayed.

If Ireland, Portugal, Spain, and Italy had to swallow the bitter pill of austerity, the argument goes, so should Greece. But are the situations similar? When it comes to GDP impact none are close to Greece (first graph below). Only with unemployment, and then only for Spain, has there been comparable pain.

Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure. The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.

Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability.

To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece whose national income, in turn – from which new and old debts had to be repaid – diminished by more than that.

Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.

Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.

In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.

Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.

The threat of Grexit has had a brief rollercoaster of a history. In 2010 it put the fear of God in financiers’ hearts and minds as their banks were replete with Greek debt. Even in 2012, when Germany’s finance minister, Wolfgang Schäuble, decided that Grexit’s costs were a worthwhile “investment” as a way of disciplining France et al, the prospect continued to scare the living daylights out of almost everyone else

By the time Syriza won power last January, and as if to confirm our claim that the “bailouts” had nothing to do with rescuing Greece (and everything to do with ringfencing northern Europe), a large majority within the Eurogroup – under the tutelage of Schäuble – had adopted Grexit either as their preferred outcome or weapon of choice against our government.

Greeks, rightly, shiver at the thought of amputation from monetary union. Exiting a common currency is nothing like severing a peg. Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation’s unsustainable debt.

To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.

This weekend brings the climax of the talks.

The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

And there’s the rub. After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

Brendan Simms writes:  When the Greek crisis first blew in 2010, there were widespread fears that if Greece defaulted on its public debts, contagion would bring down banks across the eurozone and destroy the market for government bonds in the next-in-line states, such as Italy, Spain, Portugal, and perhaps even Ireland.

To be on the safe side European officials and banks have spent the last five years quarantining Greece so that any fallout could be safely contained and a G2K avoided For this reason, the European Union provided emergency bailouts for Greece, writing down a substantial proportion of the debt in return for commitments to reform state and economy.

In some sense, contagion will probably be contained. Sunday’s referendum was framed by the Greek government as a vote against austerity, not against Europe or even the euro. Observers must thus deal with the paradox that some of the most pro-European Greeks (along with many extreme leftist and rightist anti-Europeans) voted against the bailout deal. Greek Prime Minister Alexis Tsipras and his Syriza party want a return to the drachma. They know that most of Greece wants to stay in the euro, so they will not be in any hurry to leave it. Much better to wait until Brussels forces them out. Athens will play this game, in which the resignation of Yanis Varoufakis as finance minister is only the latest move, to the bitter end.

It may be that the financial contagion in Europe can be contained, but the strategic and political contagion will be immense. Unless it also leaves the EU, Greece may become an open door, as some Syriza ministers have already threatened, through which migrants pour in. The country will drift even more into the Russian orbit, with potentially fatal consequences to the EU’s common foreign policy, especially its sanctions over Ukraine. Above all, the irreversibility of monetary union will be called into question, with huge implications for all kinds of political and economic bets placed over the past three decades. No amount of modeling can quantify the likely damage to the union, but it will be colossal and perhaps fatal to deeper integration.

Either way, the Greeks are faced with an impossible choice: either to agree to an austerity program that is crushing the life out of its young people and its weakest or to return to the failed national politics that got the country into this mess.