Home > Economics - General > Backing down on Greece’s debt is the safest, most rational option

Backing down on Greece’s debt is the safest, most rational option

July 6th, 2015

I wrote this for The Guardian and Crooked Timber in response to the Greek referendum result.

Lots of people have raised the suggestion of applying game theory to the the Greek debt crisis. I haven’t attempted this, reflecting my general scepticism about game theory in the absence of a well-defined strategy space. But now the Greek government and public have made, what is, in effect, a final move. In view of the No vote, Syriza can’t accept a deal that doesn’t include an explicit debt write-off or one that obviously crosses its stated red lines. Within those parameters, its clearly eager for a face-saving compromise.

For the other side (effectively the Troika and the German government), since Syriza’s move has already been made, the problem has now been reduced to one of decision under uncertainty, which is something I am comfortable with. More precisely, it’s a choice between a “safe” option, with an outcome that is fairly predictable, and a “risky” option where the outcome is uncertain.

The safe option for the European insitutions is to cave in, write off lots of debt and lose a lot of face. (Added in response to comments: the loss of face will particularly affect the elites in peripheral countries that accepted austerity, and will mean a further shift away from austerity in general. But the effect of a non-disastrous Greek repudation would be far greater).

The risky option is to foreclose, and force Greece out of the eurozone, and leading to a repudiation of debt. The possible outcomes involve several interdependent sources of uncertainty
* Whether the Greek economy does so badly that the Greek public regrets their choice and throws the government out at the next opportunity
* Whether exit from the eurozone is followed by exit from the EU
* Whether the process generates a broader financial crisis

From the European viewpoint, all of these outcomes except one would clearly be worse than an immediate backdown. If Greece leaves the euro and recovers, the whole austerity project will be shown up as the failure it is. If Greece leaves the EU (and especially if the UK also does) the European project is done for. And, while the institutions seem to have convinced themselves there won’t be a financial crisis, their past track record gives little ground for confidence.

So, the only case that could conceivably counted as a win is the one when the Greek economy fails, but Greece stays in the EU and there is no immediate financial crisis. I’d argue that, even here, the damage to confidence in the euro and to the European project would be greater than the costs of a backdown. If that’s right, then the “sure thing” principle applies to this decision. Backing down is the best option with probability 1.

Even if least-bad case is regarded as slightly better than a backdown, any reasonable calculation of expected payoffs for the institutions concerned would indicate that backing down is the rational choice. That doesn’t mean that such a choice will be made. People aren’t generally rational after all. Moreover, individual rationality may not be the same as institutional rationality. Quite possibly, failure will be seen as career-ending for key individuals, notably Lagarde, Merkel and perhaps Juncker. So, they may prefer institutional disaster to personal failure.

From the viewpoint of Australia and the world at large, there’s no doubt about the outcome we should prefer. European austerity has been a complete failure and raises the threat of a new global financial crisis. The sooner this delusion is abandoned, the sooner it will be possible to address the real source of the problem: the unsound and unsustainable growth of the financial sector.

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  1. Uncle Milton
    July 6th, 2015 at 15:45 | #1

    With Varoufakis now gone, they might cut a deal. It’s clear he made too many enemies and his mere presence was an obstacle.

  2. John Quiggin
    July 6th, 2015 at 15:50 | #2

    He certainly comes out of this looking better than all the actors I named on the other side, and many I didn’t. Is there anyone associated with the Troika or the German government who would take one for the team like this?

  3. Uncle Milton
    July 6th, 2015 at 16:06 | #3

    @John Quiggin

    Of course not, but why would they? Their countries’ futures are not as stake.

    Varoufakis’ cards were probably marked when on Saturday he called the Troika a bunch of terrorists. They were never going to take this lying down.

  4. John Quiggin
    July 6th, 2015 at 16:23 | #4

    They are sensitive little petals, aren’t they? Perhaps not the kind of people you want running major international organizations, but there you go.

  5. Collin Street
    July 6th, 2015 at 16:28 | #5

    > They are sensitive little petals, aren’t they?

    Your politics and your convictions spring from your personality.

  6. Megan
    July 6th, 2015 at 16:35 | #6

    From his website:

    Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

    Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.

    I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

    And I shall wear the creditors’ loathing with pride.

    We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.

    The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

    Sensitive indeed. “We won’t talk if he [points petulantly] is going to be here”.

  7. Ernestine Gross
    July 6th, 2015 at 16:39 | #7

    Never mind face saving and confidence themes. These assumed or actual emotions of embarassment are quickly forgotten in the world of Finance. The USA didn’t suffer a long lasting embarassment after de Gaulle demanded payment in gold from the USA under the then prevailing international monetary system; he revealed that the system was no longer working.

    Now is the time for the EURO member states to introduce a structured Tobin tax to pay for the privately generated debts now on official accounts (including those of debt write-downs for Greece, Ireland, Spain, Portugale if you like. Set all national debts to the max of the EURO rule and agreement from Greece to adher to EURO rules with evidence to be provided at some reasonable time in the future. Basta).

    Some thoughts on the structure of a Tobin tax on financial transactions:

    1. None on payments of imports and exports of goods. (Services go into transfer pricing).
    2. Tax rate t(a) >>0 for inter EURO members on bond, sharemarket and bank transactions in excess of Euro X
    3. Tax rate t(b) > t(a) >> 0 for non EURO member (who choose not to adopt the EURO or are outside the EU) on bond, sharemarket and bank transactions in excess of Euro X

    The Howard government put a levy on the insurance industry to pay for the costs of the HIH fiasco. It was a good policy, IMHO.

    I agree with Uncle Milton regarding Varoufakis.

  8. Uncle Milton
    July 6th, 2015 at 16:49 | #8

    @John Quiggin

    Suppose you and your mates have been running the golf club for years. Some brash new member comes in, doesn’t treat you with the deference you’ve comes to expect, and forces you to change the rules to his benefit, or he’ll blow the place up (metaphorically) and insults you while he is doing it.

  9. J-D
    July 6th, 2015 at 16:59 | #9

    @Uncle Milton

    If the new member doesn’t treat you with the deference you’ve come to expect, it may be your expectations that are out of line and not the new member.

  10. J-D
    July 6th, 2015 at 17:02 | #10

    @John Quiggin

    I suspect that people running major international organisations are odds-on to be not the sort of people I would want doing so, but then again I suspect that people running major countries (and minor ones, for that matter) are odds-on to be not the sort of people I would want doing so.

  11. July 6th, 2015 at 17:31 | #11

    @Uncle Milton

    When the “Euro leaders” impose self-defeating austerity which has been warned and subsequently proven that it won’t work except make things even worse for 8 years on Greece.

    Also see recent leaks of the IMF report which shows debt will be unsustainable in even after 2030 and we all know IMF’s projection on the negative effect of austerity is always too optimistic anyway.

    Knowing all this, they still seek to impose self-defeating austerity measures without taking responsibility on all the policy failures in the past 8 years. Not only so, they have been blaming Greece for all the wrongs of the self-defeating austerity measures and have bullied/threatened and perhaps even tried(?) to overthrow the democratically elected Greek Government.

    The other side (Syriza) has been democratically elected based on the election campaign to reject further austerity measures, tried and is still trying to do what they were elected to do, and then held a national referendum on the matter. Regardless of whether you like them or not, they are much more responsible politicians compared to those who decided to join the Euro, give up their currency sovereignty without any national referendum, and are responsible for creating this whole mess in EU.

    If I’m a Greek, and is an economist who knows all this, I would be out of my temper and call them terrorists.

  12. rog
    July 6th, 2015 at 17:44 | #12

    @Uncle Milton Yes but this was the new member that you lured into the club and, just to make him feel at home, lent him heaps of money while knowing that he couldn’t repay it and he had a nice house and wife.

  13. rog
    July 6th, 2015 at 17:45 | #13
  14. Ikonoclast
    July 6th, 2015 at 19:06 | #14

    I am sorry Yanis Varoufakis is gone. He was a truth teller; a rare person in a world of officials who are almost all liars. If Varoufakis’ words upset any Eurocrats then I am reminded of a scene in “Apocalypse Now”. Colonel Kurtz related how someone got into trouble for stenciling a swear word on a bomb (that was probably going to kill villagers and their children).

    Equally, what is the real obscenity? That Varoufakis tells the Eurocrats what they are or that the Eurocrats destroy a country, condemning it to total poverty, with idiotic, selfish and vain policies?

  15. Donald Oats
    July 6th, 2015 at 20:16 | #15

    Another possibility is that they hold their position, watch the first of the Greek banks run out of cash on hand, and then demand another meeting with the Greek government to discuss terms, having already fired the first shot to warn of the consequences, should Greece expect concessional treatment. This would be the bluff vs counter-bluff strategy, where the rest of the EU are on the bluff side, and they hope like Hades that Greece will either fold or counter-bluff at worst.

    At some point foreign cash must flood in, predictably as land grabs by international consortia for the benefit of future developers, all in the spirit of friendly capitalism. I guess the international bankers are gaming this for the lowest possible price short of going to war. Knowing them, they’ll have rigged some bets on the other side of the play as insurance. [Some county in California is going to be really miffed if the Greeks win this contest.] If their loans are unable to be repaid, they can bask in the certain knowledge that they have bought up some prime real estate at bargain basement prices.

    Too cynical?

  16. Megan
    July 6th, 2015 at 20:32 | #16

    @Ernestine Gross

    There seems to be a contradiction between your first two sentences (feelings and emotions aren’t important) and your last sentence (agree with Milton – who says Varoufakis’ perceived insult justified the Troika’s refusal to deal with him)?

    My reading of it is that the so-called “adults” have nothing better to explain their intransigence/unreasonableness up to this point and believe they can save face by painting Varoufakis as the obstacle, now that they are forced to negotiate in good faith.

  17. James Wimberley
    July 6th, 2015 at 20:55 | #17

    JQ’s list of uncertainties over the consequences of Grexit surely leaves out:
    * how much the Greek government will unilaterally default on its sovereign debt.

    They could reasonably hold that the promises to repay were made as part of a good-faith negotiation to stay in the euro. The eurozone partners have refused Greece’s final offer, so Greece is morally free to act in its own best interests. The deeper the default, the better the chances of borrowing privately on the bond markets. Greece could for instance relabel all existing eurozone debt as consols with a 1% coupon.

    Such an outcome is obviously worse for creditors than the last Greek offer.

  18. Ernestine Gross
    July 6th, 2015 at 21:35 | #18


    The contradiction, which you seem to see, is apparently due to you abstracting (ignoring or editing) from time (“quickly forgotten”) and “assumed or “actual” in paragraph 1.

  19. Megan
    July 6th, 2015 at 22:02 | #19

    @Ernestine Gross

    No, I get the idea of “time” (quickly forgotten etc…,).

    And, I took it that you agreed with Milton re:

    he made too many enemies and his mere presence was an obstacle.

    he called the Troika a bunch of terrorists. They were never going to take this lying down

    Quickly forgotten. But not TOO quickly forgotten? Therefore Varoufakis must go?

  20. July 6th, 2015 at 22:38 | #20

    Pr Q said:

    Lots of people have raised the suggestion of applying game theory to the the Greek debt crisis. I haven’t attempted this, reflecting my general scepticism about game theory in the absence of a well-defined strategy space…the problem has now been reduced to one of decision under uncertainty, which is something I am comfortable with….More precisely, it’s a choice between a “safe” option, with an outcome that is fairly predictable, and a “risky” option where the outcome is uncertain.

    I am guessing the phrase “well-defined strategy space” means a game where there are only two players and there are not too many wild cards in the deck. Since it is now the EU v Syrizia we are now in “end-game” terrirtory now.

    Following the mini-maxi strategy advocated by von Neumann it follows that the EU, given rationality, should choose the strategy that minimizes its maximum losses. Its maximum loss is the implosion of the EU.

    The post-modern elite liberal project is failing on both economic grounds (GFC rip-offs) and ethnic grounds (H-BD differentials). The rise of populist Left-wing and populist Right-wing parties indicates that there is a groundswell of public opinion against the elite liberal EU. And an anti-EU result in the UK refferendum would increase the momentum for a general EU collapse. So the Greek willingness to accept expulsion was not a bluff.

    Pr Q said:

    The safe option for the European insitutions is to cave in, write of lots of debt and lose a lot of face…The risky option is to foreclose, and force Greece out of the eurozone, and leading to a repudiation of debt.

    Either way the EU loses Greek debt. With a cave-in, the EU deffinitely saves the EU. With an expulsion of Greece the EU risks losing Greece.

    So, following mini-max, the EU will cave in, forgive Greek debt and keep Greece in the EU.

    In fact the betting odds support this view, indicating that others accept the logic of this game-theoretic reasoning.

    But it is interesting that it took the Greeks going to the edge to make the EU blink. Whicht proves that you need balls to play high stakes poker.

    Well-played Syrizia.

  21. Ernestine Gross
    July 6th, 2015 at 22:57 | #21


    Perhaps you consult with someone who is experienced in diplomacy and protocols in international relations to resolve your questions. (If you don’t know anybody, perhaps you wish to listen to the Queen’s speech on the ocasion of her recent State visit to Berlin to get an idea as to how messages are conveyed.)

    There are reports that the Prime Minister of Greece has asked the Finance Minister to resign. It is easy for Janis Varoufakis to play games and stroke his ego. His and the members of his Greek family (steel producer) are unlikely to suffer the hardship of so many Greek people. I actually believe Tsipras is sincere in tackling corruption, tax avoidance and cronyism, not only debt relief. So far it is A. Merkel who, on behalf of the German government, has publicly offered humanitarian assistance to the Greek people even if they vote No.

  22. Megan
    July 6th, 2015 at 23:10 | #22

    @Ernestine Gross

    This has been an instructive exchange, thanks.

    Did you only just become aware that Varoufakis’ father was in steel production? The ABC has just realised this, too.

    One theory is that young Yanis was sent out into the world to study economics (while his brother remained in the family steel business) 30 years ago with just this moment in mind.

    It’s plausible. But personally, I think the neo-liberal’s fabricated world is collapsing around their ears and the rest of us are going to have to clean up the mess.

  23. DC
    July 6th, 2015 at 23:41 | #23

    So far it is A. Merkel who, on behalf of the German government, has publicly offered humanitarian assistance to the Greek people even if they vote No.

    As an example of the condescending and tone-deaf German leadership during this crisis, that callous veiled threat by Merkel is hard to beat. It probably plays really well in Germany, I grant you, but when you are “leader of Europe”, isn’t one supposed to be above such base considerations?

  24. Ernestine Gross
    July 7th, 2015 at 00:02 | #24

    I am not an expert in game theory in the sense of having an original result to my name. But I am not completely ignorant in this area either.

    The first problem in applying game theory is that, even for a 2 player game, in the absence of a pre-coordination game, an assumption has to be made by each player as to which type of game (the rules of the game) is to be played. They may make different assumptions.

    A property of the Nash Equilibrium concept is lack of uniqueness for many types of games. So, if one assumes all parties are interested in a solution then the Nash Equilibrium concept is not a good one. (This assumes all actual ‘players’ know this.)

    The second problem is the number of players. It is obviously wrong to model any game as ‘Greece vs Brussel’ (ie 2 players). There are 19 members in the EURO-block (“EEU”). There are several EU members committed to joining. There is one, the UK, with a planned referendum to exist (while at the same time signalling via the Head of State that the UK should remain in the EU, and, at the same time signalling via the Head of government that they wish changes to the EU legal framework). The EU exists within a complex and partially segmented global economy. This means there are other players to be considered, including the financial market players. So, the number of players is large and none of them knows which game the others want to play!

    Are there players who are interested in not having a solution? Not hard to find, I would say.

    There is a result by Auman (at least 30 years old) on repeated bargaining games (2 players only). I can’t recall all the conditions on the preferences without looking for the article. But I do recall that under otherwise quite ‘standard’ assumptions on preferences, one result in the article is that either the parties reach agreement in the first round or the process goes on for ever.

    If one looks at the time period 2010 to the present, then the EURO member block (“EEU”) has gained grounds in so far as the risk of contagion (‘me too’) has changed significantly downward. On the other hand, the Greek government has still not declared how much debt relief they want.

    If I understand the procedures correctly, the next move has to come from Greece. In this context, Varoufakis resignation could be interpreted as a tactical move – new game. But, if all parties think ‘game theory’, then they don’t have to play the game. They can choose another one. The acute liquidity crisis in Greece is surely a credible threat.

    Forget about game theory. Humanitarian ideas together with a commitment to the European project may be better starting points to the new round.

    Now, democracy is not only relevant for Greece but for all EEU member countries. What if their populations decides on a NO to a Greek offer? Is democracy then to be suspended?

  25. Ernestine Gross
    July 7th, 2015 at 00:23 | #25


    I can’t answer your question besides noting that it seems to me the word leader (Fuehrer) is not popular in Germany – they are still trying to come to grips with what happened when they had one.

    What conclusion would you reach if you were to start off with the actual institutional framework of the EU?

  26. July 7th, 2015 at 00:32 | #26

    If default/repudiation results in Greek banks failing, it will get really interesting. Will it get that nasty? Maybe the Greek government will have to reintroduce the drachma in a hurry.

  27. July 7th, 2015 at 01:17 | #27

    Alexis Tsipras: “NO is not just a slogan”: Translation of Greek Prime Minister’s address on referendum

    Greek citizens,

    We are at a critical juncture regarding the future of this country.

    Sunday’s referendum is not about whether our country will stay in the Eurozone.
    This is a given and no one should question this.

    This is a given and no one should question this.

    On Sunday we will choose whether to accept the institutions’ agreement or whether, with the strength of the people’s verdict, we will seek a viable solution.

  28. paul walter
    July 7th, 2015 at 03:50 | #28

    I think it wrong that Tsipras has capitulated over Varoufakis, the same as I think it wrong that conservative MSM immediately launched a scapegoating campaign against Varoufakis; the same as Europe vetoed the Greeks making up payments from cutting defence spending,earlier.

    Think about that last..

  29. paul walter
    July 7th, 2015 at 03:54 | #29

    Quiggin is right.. time for some debt forgiveness. Permanently killing the Greek economy is like killing a goose for a golden egg.

    This time, let there be Tobin taxes and the like to rein in the banks and speculators. Let them start with themselves instead of ruining millions of ordinary people to alibi their plunderings.

  30. John Yard
    July 7th, 2015 at 05:41 | #30

    Don’t ask, what is in Europe’s interest, ask, what is in Germany’s interest. I believe Germany wants hard money policies – without the appreciation of the mark. From Germany’s point of view , what is there not to like in the current situation ? If , over the years , enough Southern European countries leave the euro to the point it forces the euro to a high level, it can simply dump the euro and go back to the mark. On the other hand, this exit from the euro is only potential, and at least many years away. Right now , Germany has the best of all worlds – hard money and a low euro . What’s not to like ?

  31. J-D
    July 7th, 2015 at 07:40 | #31

    @Jack Strocchi

    The post-modern elite liberal project is failing on both economic grounds (GFC rip-offs) and ethnic grounds (H-BD differentials).

    The reference to ‘H-BD’ may be too cryptic for some readers. The abbreviation ‘HBD’ is used for a concept called ‘human biodiversity’. In theory, given its etymology, the expression ‘human biodiversity’ could be used to refer to a wide range of phenomena, but in practice it is used with a much narrower range of reference, centring around the concept that black people are genetically inferior to white people.

    Whether Jack Strocchi subscribes to the view that black people are genetically inferior to white people (or anything like it) I do not know, but it is false in any case.

    (A quarter of an hour on the Web would be enough to tell most people as much as they want to know about ‘human biodiversity’, or more, so there’s no need to take my word for it.)

  32. rog
    July 7th, 2015 at 07:53 | #32

    On BBC Prof Stathis Kalyvas, author of Modern Greece: What Everyone Needs to Know, argues that Greece has a long history of bailouts and this has hindered the creation of institutions necessary to governance that are sustainable, accountable and productive.

    Bribes (presents) the black market and tax evasion flourished under a weak government.

  33. Ikonoclast
    July 7th, 2015 at 08:05 | #33

    I would say all parties are interested in a solution, not just the same solution. The solution the bankers want is repayment of all debt. The solution that the neoliberal Econocrats want is the protection of “pseudo hard money”; that is protection of a fiat currency as if it were hard money. The solution Greece wants is debt forgiveness. It needs this as a start but it needs more. It needs fiscal transfers (if in the Euro) or it needs to leave the Euro and float its own currency. These policies will not cure all Greece’s economic headaches but it would be a start not being beaten about the head with austerity.

    If Greece leaves the EU and forges its own path, I would be worried about regime change. The US, UK and maybe EU would very possibly foment regime change and encourage and facilitate a right-wing military coup in Greece.

  34. Julie Thomas
    July 7th, 2015 at 08:08 | #34


    From what I read, it seems to me that the HBD ers are a bit confused about this biodiversity thing.

    There are some hilarious discussions going on; I suppose I like to make them hilarious.

    One woman who runs a ‘safe space’ blog for HBD ers has some quite serious health issues as she discussed on one post. I commented that no matter how superior her IQ may be, with those health problems she ‘should’ consider not breeding because IQ no matter how high is not much use if one does not have ‘good health’ genes. Poor health means you are dependent on other people and that’s not being free.

    She said I was not sufficiently polite to be part of the safe space she offered. Oh well. But I did notice that her latest post – 2 months on – suggests that hbd ers stop focusing on IQ and look at other ‘diversity’ between humans.

    This is way off topic but the Strocchi zombie is irresistible.

  35. J-D
    July 7th, 2015 at 09:32 | #35

    @Julie Thomas

    I think describing them as ‘confused’ is unnecessarily generous.

  36. J-D
    July 7th, 2015 at 09:50 | #36


    I don’t think Greece is going to leave the EU, although I wouldn’t bet against it. However, if anybody thinks that the US and the UK are going to foment a military coup in Greece I am prepared to bet against it, any time.

  37. July 7th, 2015 at 10:16 | #37

    @Ernestine Gross

    If the Euro officials are “serious” in their ‘humanitarian pursuit’ of a united Europe, then they should have started off by redesigned the monetary union according to economy theory on the necessary conditions of a optimal currency area at the very least and then keep reforming it if further problems arises. Starting off by, and continuing to choose to believe in expansionary austerity fairy-tale because they are not willing to admit there are problems with the treaty is not, in any sense a “serious” attempt at creating a united Europe project like the EU.

    If the necessary conditions for optimal currency area cannot be agreed to by all the Euro countries due to political reasons, then Europe is simply not ready for a project of a united Europe and the result will be the current mess. This mess will not erode as times goes by but will only intensify whether in Greece or else where. Either the EU rewrites its treaty or it will break up because of future crisis which is only certain to come because of the regional imbalances and the lack of fiscal union in a monetary union.

  38. July 7th, 2015 at 10:24 | #38

    @Ernestine Gross

    To add to the above comment, a half baked idea like the EU in its current form has not helped progressing towards a united Europe, but worse, it has disunited them by countries like Germany and France blaming countries like Greece and perhaps soon, Portugal, Ireland, Spain and Italy as well for the faults of what is a systematic problem of the current EU which has been met with backlash in Greece. If anything, the continued existence of EU will only further disunite European countries than it helps to unite them.

    Yes, to me, Greece’s welfare system is perhaps a bit too generous, but to reform it by forcing 8 years of and counting period of depression is not the way to go.

  39. Ikonoclast
    July 7th, 2015 at 10:45 | #39


    Never underestimate the US propensity for interfering in the government of other nations by covert and overt means. It would be unwise to bet against it.

    The neoliberals cannot afford to see or allow the world to see an independent social democratic Greece succeeding. That is not in the play book of permitted outcomes. They will attack Greece at some level to prevent this happening. It could be any or all of a financial attack, covert destabilisation or covert assistance to right wing forces in Greece. This is if Greece leaves the EU.

    Much as I detest the EU outcome, I think on reflection Greece would be domestically and strategically safer staying in the EU but only on terms much more acceptable to Greeks (end of austerity, extensive debt forgiveness for Greece and outright fiscal transfers). However, for these concessions, Greece’s economy should have to undergo not privatisations or other neoliberal measures but instead extensive democratic reform of governance, the taxation system and implementation of anti-corruption measures.

  40. Ernestine Gross
    July 7th, 2015 at 11:40 | #40


    Rhetoric is not suitable for finding solutions, IMO.

    The notion of ‘optimal currency area’ is reasonably well defined in a static context. But the only constant in real life is change.

    I leave it to you to review the major international changes, including the spread of neo-liberalism, since Greece joined the EU. Maybe you want to look at some detail such as how the erstwhile thriving cotton and clothing manufacturing industry in northern Greece was decimated by these changes. You may also look at the role of outside debt-financing in making internal devaluation (and hence error control) in Greece impossible. Then there is the problem of the GFC and its effect on other EU member countries and beyond.

    So, Tom, rhetoric has no impact on me. I am, so to speak, an advertiser’s nightmare.

  41. July 7th, 2015 at 12:34 | #41

    @Ernestine Gross

    “So, Tom, rhetoric has no impact on me. I am, so to speak, an advertiser’s nightmare.”

    I gathered such is the case.

    Whilst the many constants in the notion of optimal currency area may or may not have changed since it’s introduction, so too, can be said for the Maastricht Treaty and its suitability in dealing with the current crisis.

    If EU wants to keep itself together whilst ensuring it’s population prosper rather than suffer; shouldn’t a rational decision by the troika be 1) revising on the appropriateness of austerity measures, 2) change it’s policy direction where necessary, and 3) possibility changing the Treaty (namely Article 121) to allow implementation of suitable economic policies for the current situations?

    It is the stubbornness of troika in its direction to implement austerity policy which the Greeks, it’s elected government and Varoufakis is against. If it matters, even Joseph Stiglitz and Paul Krugman has published articles about why they should vote ‘No’ in the national referendum.

    In my opinion, Varoufakis is an excellent strategist in ensuring the Greek government gets more advantages in its negotiation with troika which is the most responsible and rational thing an elected politician of his former positions can, and should have done. If rhetoric (by me or anyone including Varoufakis) has no effect on you, then on what basis do you agree with Uncle Milton’s take on Varoufakis is unclear to me.

  42. paul walter
    July 7th, 2015 at 14:17 | #42

    What Varoufarkis’ resistance has highlighted, is the refusal of Oligarchy to take responsibility for ITS Meltdown, as it seized the global economy for casino games and then blithely walked away to leave not just Greeks, but billions of ordinary people in DS as a result of the deliquency.

    Why SHOULD the Greeks, or any one else, have to “back down” when others, who caused the mess, yield not an inch in easing the burdens of, let alone compensating the victims?

  43. Cambo
    July 7th, 2015 at 15:08 | #43

    What are the “vulture funds” doing?

  44. Ernestine Gross
    July 7th, 2015 at 15:35 | #44


    #1. I appreciate clear communication. Thank you.
    #2. Rhetoric. No comment by 1.
    #3. You talk about the EU not the EUROzone. If the UK wishes to leave the EU then this is against the apparent wishes of her Queen but, given a referendum, it is a democratic decision against which there is no a priori objection I can think of.
    #4. The ‘troika” includes the IMF. Suppose one wants to play it tough, then Professor Krugman and Professor Stiglitz could be invited to convince their governments to pay

  45. J-D
    July 7th, 2015 at 15:41 | #45


    You consider that it would be unwise to bet against the proposition that the US and the UK are going to foment a military coup in Greece.

    I consider that it would be unwise to bet on that proposition.

  46. paul walter
    July 7th, 2015 at 15:49 | #46

    If they dont get their own way. They’ve done it before .. Greece, Chile, Middle East…

    The events have shown the bastardised version of international capitalism up for what it is they won’t like having been shown up.

  47. J-D
    July 7th, 2015 at 16:11 | #47

    @paul walter

    Makybe Diva has won the Melbourne Cup before but it would be unwise to bet on her winning it again.

  48. Ernestine Gross
    July 7th, 2015 at 17:22 | #48


    #1. (Line 1 to 3) I appreciate clear communication.
    #2. Rhetoric and shirking. No comment.
    #3. You talk about the EU not the EUROzone. If the UK wishes to leave the EU then this is against the apparent wishes of her Queen but, given a referendum, it would be a democratic decision against which there is no a priori objection I can think of. (Personally, I would like the UK would remain in the EU because I like ‘the Brits’ but I am not a voter in the UK therefore my preferences don’t count.) As for Article 121 of the M.T, I don’t think Goldman-Sachs is a democratically elected member of the EU with the special function of designing financial contracts to force changing the convergence rules. The Tobin tax, as outlined above, could help undoing the damages. What do you think?
    #4. The ‘troika” includes the IMF. Suppose one wants to play it tough, then Professor Krugman and Professor Stiglitz could be invited to convince their government to pay. The same applies for the UK. (Of course, President Obama is interested in a quick resolution to the Greek crisis, out of humanitarian grounds presumably and other policy items on his agenda. But many EUROzone people don’t want an international agreement where they pay for the exorbitant renumerations of US executives via ‘services’. Add the banking executives’ salaries in The City if you must. There are more objections.)
    #5. All right then, suppose we go to strategic games which aim at changing the rules of the game (ie have Varoufakis change the rules of the EUROzone.) Why did the strategist, Varoufakis, overlook the importance of capital controls before the first meeting with the EUROzone finance ministers? Big mistake for which Greek people now pay a high price in the form of uncertainty and worries and some of them being reduced to begging because they can’t even get their meager pensions. I don’t like political high stake games being played at the underdogs’ expense. How could a competent strategist overlook the obvious fact that there are another 18 democracies involved in the EUROzone? To call their democratically elected governments terrorists is stupid and it is exceedingly stupid if a referendum in Greece is supposed to matter on the grounds of ‘democracy’. Obviously, the EUROzone governemnts could not take this lying down because the respect for reason is part of the European project.

  49. July 7th, 2015 at 18:15 | #49

    @Ernestine Gross

    RE #3. I’m not too convinced that Tobin Tax by itself is sufficient to undo the damages and/or the flaws of the M.T., for reasons that whilst it may reduce the chances of speculative bubbles by banking sector, the Treaty itself, as it stands currently, still limits any governments ability to run fiscal stimulus in times of crisis. So I think the Treaty should need to be redesigned to allow situations when governments are allowed to go over specified budget deficit as % of GDP and/or public debt as a % GDP targets.

    RE#4. What Professor Krugman suggests (as I understand) is not even for troika (including IMF) to pay, rather for Greece to exit Eurozone and introduce it’s own currency. This could potentially either Greek government refusing to pay varying from x% to 100% of the government debt, or to renegotiate the debt under terms which could still allow Greece to recover after they exit, e.g. renegotiate the debt in terms of the new currency instead of Euro etc.

    RE#5. Whether one perceives he is a good strategist or not depends on how one wants to see the psychology at play. Whilst I’m by no mean an expert on this, my opinion is that he wanted to play as the arch-enemy of troika by ways of giving them as little ground as possible and redirect their hate from Syriza to himself personally. Once that is done, if the outcome of the referendum is a ‘No’ vote, he can then resign so that troika may, potential give favourable terms in the negotiation with the Greek government. In any case, when troika announced so fiercely that a ‘No’ vote is a Greece exit when they really don’t want Greece to exit, but the referendum resulted in a ‘No’ vote; they will need some stairs to step down from their awkward situation and some thing to save their faces. Varoufakis resigning served exactly that purpose. With the backing of a referendum and Varoufakis disappearing on surfaces, troika may consider more favourable terms in the negotiation with Greek government. If troika cannot reach a deal with the Greek government by the time when a parallel currency (IOUs) is wide spread in Greece, then essentially the Greek banks and governments are issue de-facto currency. If the ECB starts funding Greek banks before a deal is settled, it just means that they really don’t want Greece to go and that will give more advantage to Greek government. If a deal is not settled and Greece exits, I believe that will actually be the best outcome for Greece but the start of the end for Eurozone considering who might be the next to exit.

  50. BilB
    July 7th, 2015 at 18:23 | #50

    Paul Walter, whereas the greedy money manipulators triggered the GFC with the collapse of their phoney deals, I don’t (and I am guessing here) believe that they are the cause of Greece’s problem. From what I am reading it seems to me that Greece entered the Eurozone taking on the principles of welfare and borrowed to make ends meet. At the time the world was awash with oil money looking for safe parking places. Financial institutions were only too pleased to become the brokers, that is their sin. Here is some evidence.


    I remember through that time the number of people from nowhere who phoned me to offer “cheap” mortgages. That was the territory, this is the consequence, and in that light we need not cry much for the lenders where profiteers of money gained through oil prices at exorbitant levels due to futures speculations. But Greece’s economy needs fixing, there is no real future for them if they do not face up to the reality that everyone can not be supported by the government, all at the same time. People have to pay their taxes. Young people need the means to be able to express their creativity.

    60% of under 25’s unemployed. That is not a working economy.

  51. totaram
    July 7th, 2015 at 19:37 | #51

    “60% of under 25?s unemployed. That is not a working economy.”

    Correct! There are various ways of getting people back to work – tried and proven. But you have to give up the neo-liberal Kool-Aid. Everyone knows about Bill Mitchell’s Job Guarantee, so I won’t link to it.

    All of Greece’s current problems are confected by Alchemists who have not heard about the Periodic Table. I confess the analogy is borrowed, but it is a good one.

  52. Megan
    July 7th, 2015 at 20:36 | #52

    The El Mundo interview with Varoufakis was quite long and covers a lot of ground.

    Two extracts from a google translate version worth reproducing in the context of the above discussion:

    But Brussels accuses them of being irresponsible you are playing with fire and are led Greece to suicide …
    R.- To the readers of your newspaper I would like to send them a message: Please, do not be swayed by what others say and decide for yourself. Read our proposals and you judge. Ask yourself if our proposals are a sensible proposals or some radical proposals. If you read our proposals, they will realize that they are very moderate and very sensible proposals. We have even accepted certain fiscal measures and reforms that do not believe, and we have agreed with the intention of reaching an agreement. But the part on debt financing and we can not accept, for the simple reason that it does not hold arithmetically. The precision of mathematics indicates that if we accept what we are asked, in a few weeks the program show that it is absolutely impossible. So, who is the irresponsible here? Do not forget that the Troika has already made terrible mistakes and just five years ago shattered the economy of this country. Just compare what their predictions were saying in 2010, in 2011 and in 2012 with what actually happened. So before you point us the finger and accuse us of being irresponsible they should do a bit of self-criticism and stop pretending that their measures work. Austerity does not work, it is the view.


    What need Europe to have more Keynesian policies instead of these neoliberal policies?
    R.- It is not even against neoliberal Keynesian, but pure common sense. The Eurozone is fatally designed. The Eurogroup, for example, makes all the decisions that affect our lives. Well, does not exist on paper, it is a body that does not exist. The other day I asked if the president of the Eurogroup could ignore the rule that works for 15 years and for which all decisions of this body should be taken unanimously. And they responded by saying that the Eurogroup is not a formally constituted body, in the sense that officially and the role does not exist. We were shocked, because it is amazing. It turns out that in Europe we have a monetary union directed by a body which has no written rules, because the treaties of constitution was not written properly. What the hell have we done? Not to mention that citizens have no right to know what happens in the meetings of the Eurogroup, even 30 years later, when it turns out that in these meetings decisions that determine the lives of Europeans themselves are taken. Is this really how we want Europe to work?
    P. The neoliberals also be accused of taking extreme lengths the theory of games, to be disputing a poker game with Greece over the mat.
    R.- It is not true. You can understand I have no right to play with the lives of people or do you think of me. But what I will not do is accept a solution which I know is not the solution. Those who accuse us of playing games I guess now you may have noticed that it is not a game, it never has been. Last month they put us in front of an absolutely cruel dilemma: firmad or you will have to close banks. And we have not signed, we have refused to initial an agreement that we can not fulfill.
    P Although there are no surveys on the streets of Athens what it feels is that people with each passing day more afraid.
    R.- Yes it is. What they are doing with Greece has a name: terrorism.
    P Do you really think that what they are doing with Greece is terrorism?
    R.- Of course I think, is terrorism. Why they have forced us to close the banks? To instill fear in people. And when it comes to spread terror, this phenomenon is called terrorism. But I trust that fear does not win.

    I’m still with Varoufakis on this, and I think it is simplistic neo-liberal propaganda to reduce it to “he called them terrrsts, they can’t take that lying down”.

    It is clear from the context that he was referring to the ‘Eurogroup’.

  53. Ikonoclast
    July 7th, 2015 at 23:25 | #53


    Yes, I am not sure why certain commenters here can see neoliberals in the UK and USA but not in the EU.

  54. Megan
    July 7th, 2015 at 23:58 | #54

    It looks as though things are going to go straight past “interesting” and directly on to “spectacular”!

    The fascists, far from heeding the democratically arrived at position of Greece (i.e. ‘No More Austerity! We need debt restructuring, the IMF’s own secret research shows that to be true’), are going to continue to play neo-liberal hardball. Judging from early reports from Brussells.

    Either they really want to crash their imaginary world of wealth or they have forgotten the old saying: If you owe the bank a million dollars, you’ve got a big problem. If you owe the bank a billion dollars, the bank has a big problem.

    In answer to the rhetorical question: They can’t really be that stupid, can they? I’m increasing leading to the conclusion that they can indeed be that stupid. All the evidence is there.

  55. BilB
    July 8th, 2015 at 00:12 | #55

    Totoram, what ard the “tried and proven ways of getting people back and working”? and how do these fit into the Greek employment landscape?

  56. Ikonoclast
    July 8th, 2015 at 06:58 | #56


    I think the neoliberals are that stupid. After all, they have been trashing the planet and arguing for over 20 years that climate change doesn’t exist. Their disconnect from social and even physical reality is quite complete. This is what happens when out of touch elites are permitted to rule everything. This in turns occurs because they are permitted to own everything or at least far too much. In our system owning equals ruling. Until the people own their system they can’t rule their system.

  57. Ikonoclast
    July 8th, 2015 at 07:32 | #57

    Who planned the EU? One wonders. It could be interesting to go right back to its inception and see who planned it. Who were they, what were their backgrounds and what were their motives? Remember, this was the late 1940s and early 1950s and some of the key drivers were German bankers and industrialists who had already been prominent in the era 1935 to 1945. I wonder, does that era ring any bells?

    “The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958…” – Wikipedia.

    Of course, the UK and the USA would not have countenanced the continuation of any excess right-leaning thinking as they faced off the Soviet Union at Checkpoint Charlie now would they? (That’s sarcasm by the way.)

  58. Ernestine Gross
    July 8th, 2015 at 08:10 | #58


    Re #3. I don’t think it is a good idea to allow the proverbial Wall-Street bankers to overrule agreements reached by democratically elected governments. (I say proverbial Wall-Street bankers because not all of them reside on Wall-Street; Goldman-Sachs deserves a particular mention in relation to Greece.) A structured Tobin tax would go toward limiting the financial bubble building technology of these high finance players. It may not be quite enough but it may help a lot to prevent another GFC. I understand the EU is working on or has completed its banking regulation. I don’t see a problem with Article 121 of the M.T. It does allow temporary variations of parameter values for specific events.

    Re #4: The possibiliy has been mooted within the EUROzone members for Greece to temporarily exit the EUROzone and re-enter when she is ready.

    Re #5: Its a nice story you are telling but not as good as Monty Python’s The Philosophers Football Match.

  59. J-D
    July 8th, 2015 at 08:59 | #59


    The fascists supported a ‘No’ vote in the referendum.

  60. J-D
    July 8th, 2015 at 09:05 | #60


    Who planned the EU? One wonders. It could be interesting to go right back to its inception and see who planned it. Who were they, what were their backgrounds and what were their motives?

    Further from Wikipedia:

    ‘The ECSC was first proposed by French foreign minister Robert Schuman on 9 May 1950 as a way to prevent further war between France and Germany. He declared his aim was to “make war not only unthinkable but materially impossible” which was to be achieved by regional integration, of which the ECSC was the first step. …’

    ‘The Schuman Declaration of 9 May 1950 (later known as Europe Day) occurred after two Cabinet meetings, when the proposal became French government policy. France was thus the first government to agree to share and grow sovereignty in a supranational Community. That decision was based on a text, written and edited by Schuman’s friend and colleague, the Foreign Ministry lawyer, Paul Reuter with the assistance of Jean Monnet and Schuman’s Directeur de Cabinet, Bernard Clappier….’

    ‘In West Germany, Schuman kept the closest contacts with the new generation of democratic politicians. Karl Arnold, the Minister President of North Rhine-Westphalia, the province that included the coal and steel producing Ruhr, was initially spokesman for German foreign affairs. He gave a number of speeches and broadcasts on a supranational coal and steel community at the same time as Robert Schuman began to propose this Community in 1948 and 1949. …’

  61. Ikonoclast
    July 8th, 2015 at 09:41 | #61


    The notion that the EU is genuinely democratic in any way is risible. It is a front for oligarchic, extreme right-wing capital. It opposes genuine social democracy at every turn.

  62. J-D
    July 8th, 2015 at 10:34 | #62


    I didn’t write that the EU is genuinely democratic; nor did the text I quoted from Wikipedia refer to the EU as genuinely democratic; so I don’t understand how your latest comment is supposed to relate to the preceding discussion.

    You wrote that it could be interesting to go right back to the inception of the EU and see who planned it. So I quoted some text from Wikipedia (the same source you used previously) that names several individuals involved in the planning of the EU. All of those individuals could be looked up in whatever sources you like (we are not limited to Wikipedia). But perhaps you’ve changed your mind about whether it would be interesting to do that?

  63. July 8th, 2015 at 11:14 | #63

    @Ernestine Gross

    RE #3. “I don’t think it is a good idea to allow the proverbial Wall-Street bankers to overrule agreements reached by democratically elected governments.”

    I don’t see where I mentioned that it is a good idea to allow proverbial Wall-Street bankers to overrule agreements reached by democratically elected governments. As a side issue, sometimes, the agreements reached by democratically elected government may not be democratic, e.g. see TPP, or in the case of the establishment of the Eurozone, none of the countries held a national referendum on whether to give up their currency sovereignty. However I agree the Tobin Tax would help reducing the chances of speculative bubbles. It would be a good step forward, however progress should not be limited to just Tobin Tax.

    RE#4. Whether or not it is possible or not, this suggestion is suggested by many influential economists not only by me personally, and I agree that a Greece exit and never re-joining is the best outcome for Greece out of this crisis.

    RE #5. “Its a nice story you are telling but not as good as Monty Python’s The Philosophers Football Match”

    Exactly, as I said “Whether one perceives he is a good strategist or not depends on how one wants to see the psychology at play”. So is any speculation that it is his personal ego to play at the nation and Eurozone’s expense is also, just a speculation or a story.

  64. Julie Thomas
    July 8th, 2015 at 11:31 | #64


    Look at the EU as a system with a set of values that attracts individuals with priors that allow them to accept these values as ‘truth’ and denies them the ability to even consider that this set of values is not Truth but a set of values that has been constructed on a set of assumptions about the universe that one particular personality type prefers, maybe?

  65. Ikonoclast
    July 8th, 2015 at 12:12 | #65


    It’s very clear that the UK and USA re-enabled certain fascist tendencies in Europe from 1943 onwards.

    “If anyone were to write an honest history of post-WWII period, the first chapter would be devoted to how the British and American forces liberating Europe, one of the first things they did was to destroy the resistance, and to undermine the labor movement, and to try to beat back the efforts to create radical democratic programs. It varied in different countries but happened everywhere. Like in Italy, it started happening in 1943, since they moved in. By the time, the British and American forces reached Northern Italy, it had been pretty well liberated by the resistance, they had driven out the Germans mostly, and they had established their own institutions: worker-managed industrial systems, cooperatives, and so on. The British and Americans were totally appalled, they had to dismantle the whole thing and restore the rights of owners, meaning restore the traditional fascist system. An in fact, in the case of Italy, it’s particularly interesting. It continued at least into the 1970s. Italy was the main center of CIA subversion, well into the 1970s, but it happened everywhere else, too. In Greece, there was a war to destroy the resistance; they killed about a 150,000 people, and ended up restoring something like the traditional fascist structure.” – Noam Chomsky.

    To imagine the above occurred while the Denazification of Germany proceeded perfectly and honestly defies belief. We also know the USA welcomed Nazi scientists into their rocket program.

    Perhaps you need to do a bit of research. Try “The Nazi past of Germany’s post-war political elite” – World S*o*c*i*a*l*i*s*t Website.

    “The West German political system, as it emerged from the occupation, was increasingly opposed to the Allied denazification policy.[76] As denazification was deemed ineffective and counterproductive by the Americans, they did not oppose the plans of the German chancellor Konrad Adenauer to end the denazification efforts. Adenauer’s intention was to switch government policy to reparations and compensation for the victims of NS rule (Wiedergutmachung), stating that the main culprits had been persecuted.[77] In 1951 several laws were passed, ending the denazification. Officials were allowed to retake jobs in the civil service, with the exception of people assigned to Group I (Major Offenders) and II (Offenders) during the denazification review process.[78][79]

    “Several amnesty laws were also passed which affected about 792,176 people. Those pardoned included people with six-month sentences, 35,000 people with sentences of up to one year and include more than 3,000 functionaries of the SA, the SS, and the Nazi Party who participated in dragging victims to jails and camps; 20,000 other Nazis sentenced for “deeds against life” (presumably murder); 30,000 sentenced for causing bodily injury, and 5,200 who committed “crimes and misdemeanors in office.”[80] As a result, several people with a former NS past ended up again in the political apparatus of Western Germany.” – Wikipedia.

    As late as 1977 there was the case of the murder of known former Nazi, Hanns Martin Schleyer.

    “(He) was a German business executive and employer and industry representative, who served as President of two powerful commercial organizations, Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA) and Federation of German Industries (Bundesverband der Deutschen Industrie, BDI). He was targeted as an enemy by radical elements of the German student movement due to his role in those business organisations and his past activities as an officer of the Nazi SS.[1][2][3] He was kidnapped on September 5, 1977 by the far left organisation Red Army Faction (Rote Armee Fraktion, RAF) and subsequently murdered. The abduction and murder are commonly seen as the climax of the RAF campaign in 1977, known as the German Autumn. After his death, Schleyer has been honoured in Germany; the Hanns Martin Schleyer Prize, the Hanns Martin Schleyer Foundation and the Hanns-Martin-Schleyer-Halle are named in his honour.” – Wikipedia.

    “Very early in his life he became a follower of National Socialism. After a stint in the Hitler Youth, the youth organization of the National Socialist Party, he joined the SS on July 1, 1933, gaining SS number (Nr. 221.714) and was an SS Untersturmführer (Second Lieutenant). During his studies, he was engaged in the Nazi student movement. An early mentor of this time was the student leader Gustav Adolf Scheel. In the summer of 1935, Schleyer accused his fraternity of lacking “national socialist spirit”. He left the fraternity when the Kösener SC, an umbrella organization, refused to exclude Jewish members. Schleyer started a career as a leader in the national socialist student movement and, in 1937, he joined the Nazi party. At first he was the president of the student body of the University of Heidelberg. Later, Reichsstudentenführer Scheel sent him to post-Anschluss Austria, where he occupied the same position at the University of Innsbruck.” – Wikipedia.

    So we see how German high economic and political society was still riddled with (former) Nazis up until the 1970s. Then they re-write hisotry and turn some of them like Hanns Martin Schleyer into heroes.

    A lot of the history you (obviously) believe is false propaganda of the UK, US and EU right wings.

  66. Luke Elford
    July 8th, 2015 at 13:15 | #66


    It is fascinating how the crisis has been driven by:

    1) ideological commitment to the idea of a united Europe that refuses to give consideration to the potential for a common currency to cause economic chaos, coupled with

    2) obvious loathing of the Greek people and complete disregard for their suffering on the part of politicians, officials, the media and the public in the rest of Europe, especially Germany.

    Their failure to see the conflict between their supposed desires and actual actions demonstrates compartmentalized thinking on a grand scale. What part of the fact that people in different regions of well-functioning countries don’t behave that way towards one another don’t they understand?

  67. July 8th, 2015 at 13:33 | #67

    @Luke Elford

    In my opinion, the part of the fact that people in different regions of well-function countries don’t behave that way because they are more familiar with the people in those regions by means of family, friends and online conversations etc. Thus also results in making bullshit about those regions difficult.

    When it comes to one country making bullshit about another country, it is a different story. People are made aware of the difference between the two region through even the difference in the name of the countries and thus they are made aware that people in the other region is different to people in their region. Combine that will misinformation coupled with propaganda and you’ll get the current situation about how the public in other EU countries reacts to Greeks.

    One very important thing that people in a well-functioning countries aren’t made aware of is the constant transfers between regions. E.g. the Commonwealth government flood subsidies to Queensland effectively means a transfer of tax revenue collected from all states to Queensland and so is true for other types of transfers such as the difference in the distribution of GST revenue in per capita terms between the different states.

    The above does not happen in Eurozone; not only so, people are even reminded that they are lending money to Greece who may not be able to pay it back. It is sad, however that they also don’t seem to think about that, ever since the start of the so called Greece government debt problem a few years ago, the same lenders are still lending them money up until the last week. I guess logic does only work one way not the other now, it is always the borrower’s fault, the people with money are ALWAYS FORCED to lend their money without any risk assessment to borrowers.

  68. July 8th, 2015 at 13:36 | #68

    @Luke Elford

    My reply comments is in moderation, I guess the wording may have triggered auto mod.

  69. Ernestine Gross
    July 8th, 2015 at 14:57 | #69

    Re #3: True, you did not mention it is a good idea to let the proverbial Wall-Street bankers overrule the agreements of democratically elected governments. But it is also true that I did not claim you did. (I don’t agree with unlimited and sustained deficit financed fiscal policy as a response to the GFC under otherwise ‘normal’ conditions. By all means use taxation to finance expansionary fiscal policy and reduce income and wealth inequality – gently but firmly. A structured Tobin tax is one such measure and one which could claw back a little bit of the wealth syphoned off from the public by the said players.) As for what you call ‘side-issue’, except for more or less continuous referenda, ‘democracy’ entails delegation to elected representatives. It is going to be interesting to see how much more pressure the populations of various EURO-zone countries are going to exert against the TTP and how successful they are going to be.

    Re #4: Assuming Greece will leave the EURO-zone, I would like to leave it up to the Greek people if they wish to join later at a time when they are ready. I am encouraged to hear the EU (EURO-zone) has already committed to humanitarian assistance in the case of a Grexit. Do something for Greece, take a holiday and pay cash in Euros to small business and give plenty of tips. My Greek friend tells me much of the economic activity is already on barter (as predicted by Bennasy), which works reasonably in country areas but not for city folks.

    Re #5: Well, as a game theoretic strategist, Janis V. has failed (outcome of the ECB’s decision on the provision of liquidity and series of meetings in Brussel). If, however, you have ‘communications strategies’ in mind, as seems to be the case, then this is a total waste of time, IMO. I am sure my latter comment does not surprise you. If my conclusions have nothing to do with Janis V’s ego, as you suggest, then this is fine with me.

  70. July 8th, 2015 at 15:31 | #70

    @Ernestine Gross

    Agreed on #3. With a little addition at the TTP with regards to how much pressure the populations of various EURO-zone countries are going to exert against it. If there are information blackout or little to no mentions of it in the MSM, I do not think it’ll create much resistance from the population. See e.g. asylum seeker issues here, as well as TPP itself, is not seen at the moment as a worrying issues (as compared to ‘terrorism’) despite the secrecy and the worrying leaks, those who are worrying are mostly informed in the field.

    RE #4. (rhetoric switch on) In principle, I support a more united Europe (rhetoric switch off). However I’m still against the idea of Eurozone at its current form as the common currency is one of the sole cause of the current regional adjustments crisis.

    RE #5. As his goal of the game is unknown besides speculation, a discussion about his success or failure is indeed a waste of time.

  71. totaram
    July 8th, 2015 at 15:42 | #71

    Very briefly, run fiscal deficits, and act as the employer of last resort. There are lots of jobs that need to be done, but no one wants to pay for them right now because of austerity.

    You can read about employment guarantee schemes of various kinds run successfully in Argentina, India etc. Google is your friend.

  72. Ernestine Gross
    July 8th, 2015 at 17:09 | #72


    As for blog conversations between strangers I would say our exchange has been quite successful. I suppose unless you and I would be invited to some EU or EURO-zone meeting a resolution of the remaining differences in opinion between us is of no consequence. My probability assessment of such an event is zero. I don’t know what your assessment is.

  73. Ernestine Gross
    July 8th, 2015 at 17:53 | #73

    @paul walter

    ” the same as Europe vetoed the Greeks making up payments from cutting defence spending,earlier.”

    This is interesting because the Sueddeutsche Zeitung reports exactly the opposite. That is, the EURO-group had proposed cutting defence spending and this was rejected by Greece.

  74. Uncle Milton
    July 8th, 2015 at 18:08 | #74

    @Ernestine Gross

    the EURO-group had proposed cutting defence spending and this was rejected by Greece.

    The Defence Minister is from the Independent Greeks, a far-right party. Presumably Tsipiras would like to keep his majority in the parliament.

    And besides, Greece’s traditional enemies, the Turks, haven’t gone anywhere.

  75. BilB
    July 8th, 2015 at 18:11 | #75

    Putting up some figures.

    The problem for Greece is, Totaram, from what I can gather, that is precisely what Greece was doing for some years running into the GFC. It was not a healthy economy that was gutted by the GFC, but Greece is not without resources. They do produce reasonable quantities of a variety of mined resources but here is the problem

    “Greece is a developed country with an economy based on the service sector (81%) and industry (16%). Agriculture contributed 3.4% of the national economic output as estimated in 2012.[2] Important Greek industries include tourism and shipping. With 18 million international tourists in 2013, Greece was the 7th most visited country in the European Union and 16th in the world”


    “After fourteen consecutive years of economic growth, Greece went into recession in 2008.[69] By the end of 2009, the Greek economy faced the highest budget deficit and government debt-to-GDP ratios in the EU. After several upward revisions, the 2009 budget deficit is now estimated at 15.7% of GDP. This, combined with rapidly rising debt levels (127.9% of GDP in 2009) led to a precipitous increase in borrowing costs, effectively shutting Greece out of the global financial markets and resulting in a severe economic crisis.”

    To my thinking the services sector was Greece’s Achiles heel as building into the GFC, and contributed most to the huge unemployment. Further compounding the problem many of those service providers that did not loose their jobs did less to help the economy

    “Greece suffers from very high levels of tax evasion. In the last quarter of 2005, tax evasion reached 49%,[183] while in January 2006 it fell to 41.6%.[183] A study by researchers from the University of Chicago concluded that tax evasion in 2009 by self-employed professionals alone in Greece (accountants, dentists, lawyers, doctors, personal tutors and independent financial advisers) was €28 billion or 31% of the budget deficit that year.”

    Furthermore corruption may be one of the reasons why Greece has one of the largest merchant fleets (floating assets) in the world. Is this an asset or a liability?

    Greece has 1.2 hectares per person, not enough land to feed its population without industrial style agriculture. It does have a large coastline though.

  76. July 8th, 2015 at 18:22 | #76

    @Ernestine Gross

    A resolution of the remaining differences in opinion between us will indeed be of no consequence for the event in Europe. However I agree that our exchange has been quite successful and have certainly gave useful insights to me.

    Just to have my final word in our exchange, I understand that to be a good economist (or an academic for that matter), emotions, feelings and speculations in analysing events may be something to avoid; but to what point should economist separate these from pure arithmetic and theoretical analysis when economic is so closely related to politic is a question which leads to no clear answer. Hypothetically, if economically speaking, the best way forward for Greece is to exit Eurozone but the political situations are difficult to reach such result; then does by creating the current economic and political mess which has perhaps increased the likelihood of Greece exit justify the consequences the current situation has caused? My answer to this question creates complex feelings as I am against the idea that the end justifies the means, however in my economic analysis, the exit end result is likely to be the best result.

  77. Megan
    July 8th, 2015 at 20:21 | #77

    European Parliament Plenary session Live NOW:


    They have now been limited to one minute each, but you’ll still hear the full range of views and talking points.

  78. Megan
    July 8th, 2015 at 20:28 | #78

    Tsipras is there and gave the opening address and for the last few hours they have been taking it in turns to stick it up him or support the Greek peoples’ ‘No’ decision. Most are repeating neo-liberal talking points and getting up him.

    He is taking notes.

  79. J-D
    July 8th, 2015 at 21:17 | #79


    I do not see any relationship between this comment and the ones from which it follows on.

    If I wrote ‘there were no Nazis in Germany after 1945’, I would be making a false assertion, and it would be relevant for you to point out to me how I was wrong about that. But I did not write and have never thought that there were no Nazis in Germany after 1945. If you want to indicate a statement I actually made that you think is incorrect, it would be different. But your remarks have nothing to do with what I actually wrote. As far as I can make out, instead of discussing what I actually wrote, you are conjuring up an imaginary version of me out of nowhere and then going to some lengths to contradict its imaginary statements. Why you are so interested in arguing against something that is not there I do not understand.

  80. Ernestine Gross
    July 9th, 2015 at 03:31 | #80

    The new Finance Minister of Greece has submitted a letter of request for emergency funds to the Eurogroup. The letter, written in English, is available on the following web-site. By scrolling down a little you will see a block in smaller print, which is the letter, and an enlargement icon.


    As everybody probably knows by now, the Greek government has to provide a detailed reform agenda by 10/7/15, then there will be a hierarchy of meetings over the week-end culminating in a meeting on Sunday with all 28 EU members.

    There are reports that EU member countries from the North-East (Finland, and Baltic countries) are least inclined to assist Greece on the grounds that their circumstances in terms of living standards are below those of Greece (not since last Monday, I assume).

  81. Ernestine Gross
    July 9th, 2015 at 04:56 | #81

    Andrian Kreye, SZ published an open letter to Angela Merkel by Thomas Piketty (Paris), Jeffrey Sachs (N.Y. Columbia) Dani Rodrik (Harvard’s Kennedy School), Simon Wren-Lewis (Oxford), Heiner Flassbeck (former State Secretary in the German Federal Ministry of Finance, economist, now public advocate against ideological ossification in his field), together with a description of the publication channel and a comment.


    The open letter was published via the US organisation Avaaz, which according to Kreye is a controversial activist organisation (involved in channelling journalists into Syria with some tragic endings, among other ventures.) Kreye also discusses the importance of separating media and scientific research from activism.

    Comment. I am a little surprised about Prof Piketty and Flassbeck because, being French and German respectively, they probably know the decision making structure of the EURO member countries and, at least Flassbeck could know Merkel plays by the rules (and by doing so, represents a large segment of her constituency). There are plenty of articles in the German press, which discuss the difference in leadership style between Merkel (PhD in physics) and Kohl (a historian), both CDU, and Schroeder (Law) SPD. Furthermore, Piketty probably knows that France was the initiator of the common currency. The letter is written in English. This makes it particularly awkward because it is essentially addressed to the English speaking world and not to the German Chancellor. She might feel obliged to ignore it so as not to be accused of responding or being influenced by letters ostensibly designed to deceive her constituency. Who knows.

  82. Ikonoclast
    July 9th, 2015 at 06:02 | #82

    @Ernestine Gross

    1. It’s an open letter.

    2. How is the letter “designed to deceive her constituency”? Something “designed to deceive” must be intentionally dishonest. To sustain such a charge it must be conclusively demonstrated what lies, deceits or misconstructions Piketty et. el. are deliberately employing.

    3. It’s interesting to note that Krugman, Stiglitz, Sachs and Piketty are all highly critical of “the troika”, the I.M.F., the European Central Bank and the European Commission, in their policies towards Greece. I am strongly encouraged that my views on this matter are supported by economists of the stature Krugman, Stiglitz, Sachs and Piketty.

    4. The claim that Merkel plays by the rules of the EU is refutable as it is clear that northern European nations including Germany under Merkel have repeatedly flouted EU rules. It might be worth looking at the article ” The Ticking Euro Bomb: How the Euro Zone Ignored Its Own Rules – After they joined the euro zone, the countries of southern Europe suddenly discovered they could borrow money at German-style rates, and any hope of sorting out their dodgy finances vanished. But it was France and Germany who set the worst example, when they broke the euro-zone rules they had forced on others.” – Spiegel Online. It might also be worth considering Bill Mitchell’s claims in this case. Mitchell’s claimed example of how France and Germany broke the rules can be researched and proven or disproven as the case may be. You don’t have to take Bill Mitchell’s word for it.

    5. In any case, the claim that rule-based behaviour is ipso facto always morally acceptable is completely untenable. If a rule, command or order requires you to do something morally wrong then it is a moral requirement that you NOT follow the rule, command or order. I hear Nuremberg is lovely this time of year and a wonderful place for reflection on the lessons of history.

  83. Uncle Milton
    July 9th, 2015 at 07:40 | #83

    It looks like Tsipiras and his government have decided that backing dine in Greece’s debt is the safest, most rational option. They are going to agree to a worse deal than was on the table before the referendum, let alone in February.

    The problem is, they have no negotiating power, nothing to threaten the Troika with, no cards to play. Everybody knows that a Grexit, whatever the theoretical benefits of Greece having its own currency, would most likely destroy the Greek economy, Zimbabwe style, with little fall out on the rest of Europe. The prospect is more austerity is appalling but still better than the Armageddon of no economy at all. Varoufakis’ promises that No would lead to an immediate better deal have been shown to be empty. He and Tsipiras seriously misled the Greek people. They will be judged harshly.

    But it might be a Pyrrhic victory for Merkel and her cronies. The British have got their own Brexit decision coming, and they might well ask whether they want to stay in this Europe. There are also fascists throughout the continent – real fascists, not the ones in Megan’s imagination – who will stir up ugly nationalist sentiment. But when the Eiropean solidarity rhetoric is shown to be so much fake posturing, that’s what you’ve got to expect.

  84. rog
    July 9th, 2015 at 08:12 | #84

    Listening to the BBC I was surprised that most businesses in Athens use only cash which meant that once banks restricted withdrawals trade stopped. If they used eftpos surely all this would have been avoided?

    Greeks that I know are a deeply suspicious lot and hard to do business with – perhaps this distrust extends to card and electronic transactions. Tax avoidance and backhanders (gifts) are also a national sport. You would think that cash would allow these activities to continue unchecked.

    I guess behind this all is the left/right struggle that has been Greek history.

  85. J-D
    July 9th, 2015 at 08:37 | #85


    I have heard and read more than once that Australia as a country has a track record of early adoption of a range of advanced technological systems — I can’t remember the examples given, but something like EFTPOS would definitely be within the range.

    I have not verified these reports, but they do suggest that we should consider the possibility that it’s not Greece that’s exceptional in lack of use of EFTPOS but Australia that’s exceptional in widespread use of it.

  86. Ikonoclast
    July 9th, 2015 at 08:44 | #86

    @Uncle Milton

    I haven’t seem any news confirming that Tsipiras is going to back down and take a worse deal than possible earlier. Do you have a link to such news?

    It is not correct that Greece has no negotiating power. They have some. Greece could for example ban imports of arms from Germany and France. (France and Germany still account for the vast majority of arms sales to Greece.) No doubt the French and German arms dealers (dealers in death whom one could justly call a “death cult”) would run squealing to their government if they lost all their Greek arms deals.

    It is not correct that exiting the Euro, running its own currency and defaulting on debt “would most likely destroy the Greek economy”. That outcome is possible but actually rather unlikely if such policies are implemented correctly. There are successful precedents for it. There would be adjustment pain in that path for Greece but actually less pain than the austerity-generated Greek Great Depression which they are in right now.

    There are real fascists in Europe and among them are the ones Megan identifies for example in Ukraine. These are not in Megan’s imagination.

    It is true that European solidarity rhetoric is “so much fake posturing”. I agree with that. The core does not care one iota for the periphery. I know I will appear anti-German and maybe anti-French to some but my perspective is that of Great Power politics in this matter and Germany and France are the Great Powers of western Continental Europe. Great Powers never care for minor powers. They never have and they never will.

    It was to be hoped that Europe could rise above nationalism but clearly it can’t yet. What is really behind the severe and cruel punishment of Greece is greed, selfishness, stupidity, parochial blindness and plain bad economics. Clearly the German and French peoples feel no solidarity with Greeks. Pan-Europeanism is dead for the foreseeable future.

    Europe faces a lot of problems from now and going into the future. The EU is failing. Their economies are failing or at best stagnating (including GB, France and Germany). Their continent (sans European Russia) is overpopulated and in many ways resource depleted. The flight of capital and manufacturing to Asia proceeds apace. Europe is under stress and in long term decline. These stresses and pressures are more likely to fracture it than bring it together. We are seeing the proof in the lack of solidarity with a suffering member actually made to suffer far more tan necessary by the EU’s most powerful and most selfish nations.

  87. Uncle Milton
    July 9th, 2015 at 09:32 | #87


    You can’t have your own currency, which means running your own monetary policy and payments system, if all your banks are insolvent. This is what will happen with a Grexit. There are precedents for countries successfully breaking away from a currency union, most recently the Czech Republic and Slovakia in 1993, but they did not do this in the midst of an economic crisis, and they had functioning banks. This makes all the difference.

    The Greeks know this, which is why they are so desperate to stay in the Euro. The Troika know that the Greeks know this, which is why they feel so free to dictate terms.

    Some time ago, on his blog, before he entered politics, Varoufakis said “Greece is finished”. He knew then there was no good outcome for Greece. He and Tsipiras played poker and bluffed, but you can’t win by bluffing if the other player knows what cards you’ve got, and those cards are nothing. The whole song and dance that Syriza has engaged in for the last 6 months has been a farce. Varoufakis and Tsipiras told the Greek people they could get them a better deal, but that was never going to happen.

  88. Uncle Milton
    July 9th, 2015 at 11:06 | #88

    Here is Varoufakis in 2012, speaking truthfully, before he became a politician


  89. Ernestine Gross
    July 9th, 2015 at 12:39 | #89


    Under current conditions in the banking sector in Greece (introduced by Y. Varoufakis with the agreement of the Greek government) eftpost transactions work satisfactorily for all parties only between a Greek merchant with a banking account outside Greece and a buyer with a banking account outside Greece (say a transaction involving foreign currency accounts held in in Switzerland and Germany or the UK or Australia) otherwise personal IOUs are just as good because the merchant would not know what he will receive after the current crisis come to an end. An IOU written in physical goods (barter) may be preferred.

  90. Ernestine Gross
    July 9th, 2015 at 13:05 | #90

    @Uncle Milton

    Even in this interview Y. Varoufakis is not honest because he does not tell the Australian audience that by 2012 the Greek economy had been running on false data for more than 10 years (they entered the EURO presenting falsified national accounts data in 2001 and the difference between random errors and estimation errors and false data was not revealed in 2010) and that the Greek government spent money on advice from Goldman-Sachs. (Papandreo, a previous socialist Prime Minister of Australia, told Australians in A TV interview the truth about corruption, tax evasion and a few other problems.)

    I do not recall the exact number of times the EUROgroup had to ask for further clarification and corrections of the national accounting data since 2010. Eventually Greece agreed to have technically competent people from the EUROgroup to supervise the national accounting in Athens.

    I understand, technically, Y. Varoufakis did not lie because L. Sales didn’t ask him whether the Greek economy had been running on false data for 10 years.

    Y. Varoufakis conveniently ignores the global financial crisis and he fails to state that there was no national accounting problem in Spain and Portugal. What about the miserably poor and sick without health insurance in the USA at the time?

    To be clear, this is not the fault of the Greek people who now have to suffer. It is the fault of the political elite. No apparent change in sight. The holiday season has started. There are already reports that tourists have cancelled Greek holidays and booked in Spain instead.

  91. BilB
    July 9th, 2015 at 13:17 | #91

    Thanks Ernestine again, calling it how it really is.

  92. Ernestine Gross
    July 9th, 2015 at 14:04 | #92

    Important correction in my post #89.

    (Papandreo, a previous socialist Prime Minister of Australia,…), line 7, para 1, must be replaced by Papandreo, a previous socialist Prime Minister of Greece.


  93. Uncle Milton
    July 9th, 2015 at 14:38 | #93

    @Ernestine Gross

    Fun fact: His father, Andreas, was also a socialist PM of Greece. He had been a professor of economics at Berkeley. Was arrested by the colonel’s military junta, nearly shot on the advice of the local CIA operative, but released after Lyndon Johnson applied pressure, at the behest of John Kenneth Galbraith.

  94. Ikonoclast
    July 9th, 2015 at 15:46 | #94

    @Uncle Milton

    “You can’t have your own currency, which means running your own monetary policy and payments system, if all your banks are insolvent.”

    Do you mean if all the country’s private banks are insolvent? Do you mean if all the country’s public banks are insolvent? Do you mean if all the country’s public and private banks are insolvent? Do you mean if the state, national or reserve bank is insolvent? If you ask yourself what you mean precisely you might start discovering problems. If you ask what a fiat currency is you might also start discovering problems with your statement.

    The fact is that the state, national or reserve bank (whatever it is called precisely) cannot ever be insolvent because it can issue its own currency. Of course, Greece cannot do that while it is part of the Euro. If it left the Euro and printed New Drachmas it would have no problem with insolvency. It might have other problems, real and financial, but it would have no problem with insolvency as such.

    Leaving the Euro and reneging on all its debt would mean Greece owed nobody anything. It’s that simple. Money is an invented notional construct. It is not real in the sense that real resources or goods are real. Money can be created ex nihilo (out of nothing) and destroyed ad nihilum (into nothing). Thus Greece can destroy all the (debt) money it owes (by reneging on the debt) and it can create its own new money. Nobody can stop the Greeks doing that with impunity unless they declare war on Greece.

    Greece would face real problems if it did that but all those real problems are solvable in time. These problems would be less onerous than the Great Depression imposed on Greece by EU austerity.

    Ernestine makes a great deal of Greece’s “dishonesty” with the EU and with foreign creditors. The Greeks, or rather their elites, may well have been dishonest. I will let you all into a little secret. All nations are dishonest with all other nations all the time. Gee, who’d have thought it? Maybe anyone who had read even a modicum of history. What should any country, any business or any lender do when it enters into a deal? It should do due diligence. Clearly the EU and other financiers who lent Greece money did not do their due diligence. The fools deserve to lose their money in that case.

    Currently, they are meting out the kind of retribution on Greece that all cowards mete out. The retribution of picking on the weak people, the poor people, the people who had nothing to do with these high-flying international deals.

    The Greek people are now twice betrayed. Betrayed by their own government and business elites and also betrayed by the rest of the EU. If Syriza betray them as well they will be thrice betrayed. Does Europe want to have on its periphery a nation of 11 million people with a big military and nothing but desperation on their hands? Greece could erupt, probably internally, but these things have a habit of spilling over borders.

  95. totaram
    July 9th, 2015 at 15:50 | #95


    As usual, you have put it very well. Thanks.

  96. Ikonoclast
    July 9th, 2015 at 16:11 | #96

    Footnote: There is a guide paper Syriza could use to leave the Euro. It won the Wolfson Prize in economics in 2012. It’s called;

    “Leaving the euro: A practical guide”


    I haven’t read it myself yet so I do not know which side of the argument would get comfort from it.

  97. Uncle Milton
    July 9th, 2015 at 16:12 | #97


    Leaving the Euro and reneging on all its debt would mean Greece owed nobody anything

    Greek private companies, whose liabilities to foreigners are in Euros and who assets would be in drachmas, would be bankrupted instantly, and subject to EU bankruptcy proceedings in EU courts.

  98. James Wimberley
    July 9th, 2015 at 16:16 | #98

    @Ernestine Gross
    Finland poorer than Greece? That’s in crazy territory.

  99. Ikonoclast
    July 9th, 2015 at 16:18 | #99

    2nd Footnote:

    An elegant and apposite quote from the above paper:-

    “Nominal disequilibrium requires a nominal solution.”

  100. Ikonoclast
    July 9th, 2015 at 16:46 | #100

    @Uncle Milton

    The paper I am now reading (and which I posted in a link above, comment 95,) seems to recommend a half default on national debt not a full default (but I am still reading).

    This paper begins to discuss private debt and systemic bankruptcies on page 59. No doubt, preceding and following pages contain much more of the necessary information and alternatives with costs and benefits mentioned, contrasts between laissez-faire approach and government directed approach and the various bankruptcy and legal issues. Re-denomination of debt plays a role.

    Maybe instead of making hand-waving objections like,

    – “You can’t have your own currency, which means running your own monetary policy and payments system, if all your banks are insolvent.” ;

    – ” Greek private companies, whose liabilities to foreigners are in Euros and who assets would be in drachmas, would be bankrupted instantly, and subject to EU bankruptcy proceedings in EU courts.);

    you need to read and consider what is actually possible well within economic orthodoxy as laid out in this paper.

    Sure it would be tough medicine (and not just for Greeks). But if you don’t support a Grexit you need to explain, at least for the purposes of debate here, how to prevent a Grexit AND how to solve Greece’s current national great depression within the Euro context.

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