Current events in Greece are genuinely transformational in more ways than one. Clearly the Greek economy is in a heck of a mess. It is not at all obvious whether either of the future directions on offer – eye-watering austerity, on the one hand, or default, exit from the euro and return to the drachma, on the other – offers the better economic route forward for Greece. But it is clear which direction European authorities see as better for the wider Eurozone.

Greek default would create turmoil and render the viability of the Spanish, Italian and Irish economies questionable as creditors sought to reassess and downgrade their holdings of sovereign debt. It would pose serious questions for banks across the Eurozone, in particular in France and Germany. While Greece accounts for a very small component of total Eurozone economic activity it is the symbolic significance of a default – and the profoundly negative chain of events that it could set off – that is feared.

But no one can be certain precisely what would happen if Greece did default. We’d be off the edge of the map of the known economic world. The consequences for Iceland, for example, of ignoring advice after the Global Financial Crisis and following a route viewed by experts as fundamentally misconceived turned out to be less cataclysmic than forecast (as Rick recently noted at Flip Chart Fairy Tales). Yet, it is this very ambiguity that opens up the space for a narrative of global disaster. And, as a consequence, a rationale for intervention. At the very least, default would pose some searching questions about the future of a Eurozone based upon economies that are structurally diverse.

The British Government has sought to provide reassurance that British exposure to Greek default is relatively low. As far as I can gather that rather sanguine position depends on a fully functioning market in credit default swaps. If that market collapses under the strain of systemic risk crystallisation – a key cause of failure in insurance markets generally – then British and US banks will be up the creek as well.

While the economic consequences of the crisis are profound, the political economy of the crisis is equally important.

Anyone with a passing familiarity with the literature on development with have encountered the Washington Consensus and its consequences. There is a critical literature on the way in which international institutions such as the World Bank and the IMF operate. Grave concerns have been expressed about the impact of the coercive transfer of policies of fiscal retrenchment, privatisation and marketisation that have typically accompanied financial assistance.

But all that has happened a long way away – in countries in sub-Saharan Africa or Latin America who have perhaps never managed to deal effectively with the legacy of Colonialism. These are countries that don’t necessarily have properly functioning democratic government. Corruption may be rife. These are the sorts of issues that most people don’t worry too much about. In fact, some might even think that setting aside national sovereignty in order for the developed world to deliver a ‘reality check’ and impose some fiscal discipline is a price worth paying.

The Greek crisis brings these issues much closer to home. The same sorts of processes are being played out in the cradle of democracy itself.

So we are seeing the supranational institutions of the EU and the IMF effectively holding a gun to the head of the Greek government in order make them force through further austerity measures. While economic orthodoxy insists on the correctness of the measures, their effectiveness is uncertain. There are credible arguments that a further dose of austerity is only postponing the inevitable. Of course the effectiveness of the package depends on the precise design of the measures, and this is evolving rapidly. The recent initiatives from France effectively to bury Greek debt for 30 years could make a difference to the chances of success.

What is not in doubt is that the unpopularity of the proposed measures with many of the Greek people.

Commentators have repeatedly highlighted the significance of the current situations for the notion of self-determination – in more or less vivid and heartfelt terms (for example, on Sturdyblog and in the Guardian). The crisis is allowing supranational institutions and creditor governments to probe the limits of sovereignty. Greece has largely forfeited the right to determine its own future. The views of the Greek people come some way down the list of factors that will determine the outcome. Democracy is dispensable when powerful actors deem local actions to be of global significance. The radical uncertainty over the potential fallout from Greece defaulting opens up the space for this to happen.

The intervention from China is equally interesting. China already holds large amounts of US debt, which shifts the balance of power both bilaterally and globally. If China takes on significant amounts of European sovereign debt in order to sustain the country through this period of difficulty then that can only accelerate the transformation of the map of global economic power.

The events we are witnessing are genuinely transformational geopolitically. All governments – not just those in far away underdeveloped countries – are on notice that their discretion only stretches so far. They can get themselves into such a mess that they lose agency. In a globally interconnected economy your business is potentially everyone’ s business. When it is perceived – or claimed – that larger issues are at stake then there will come a point at which more powerful governments will step in and say enough is enough.

Power. It’s always about power.

It would be possible to argue that we are seeing the realisation of the European dream by default. European monetary union without political union has been seen as a partial and problematic project. The policy actions required to keep the Eurozone economy on track needed to be co-ordinated in a way that a collection of sovereign states would find difficult to manage. So perhaps what we are seeing is the start of European government by default, in order to stop default. Power moving to the centre and away from the people.

It’s undoubtedly too early to tell. The protests of the Greek people may mean the vote for austerity is lost. And events will then spin off in a completely different direction. Whatever happens next we can be assured that it will touch all of us, whether we are aware of it or not.