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.
John Quiggin 
With Varoufakis now gone, they might cut a deal. It’s clear he made too many enemies and his mere presence was an obstacle.
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?
@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.
They are sensitive little petals, aren’t they? Perhaps not the kind of people you want running major international organizations, but there you go.
> They are sensitive little petals, aren’t they?
Your politics and your convictions spring from your personality.
From his website:
Sensitive indeed. “We won’t talk if he [points petulantly] is going to be here”.
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.
@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.
@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.
@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.
@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.
@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.
The say that the only truth is in the business pages http://www.businessinsider.com.au/greece-referendum-result-and-the-meaning-of-debt-2015-7
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?
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?
@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.
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.
@Megan
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.
@Ernestine Gross
No, I get the idea of “time” (quickly forgotten etc…,).
And, I took it that you agreed with Milton re:
Quickly forgotten. But not TOO quickly forgotten? Therefore Varoufakis must go?
Pr Q said:
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:
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.
@Megan
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.
@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.
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?
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?
@DC
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?
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.
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.
…
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..
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.
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 ?
@Jack Strocchi
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.)
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.
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.
@J-D
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.
@Julie Thomas
I think describing them as ‘confused’ is unnecessarily generous.
@Ikonoclast
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.
@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.
@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.
@J-D
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.
@Tom
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.
@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.
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?
What are the “vulture funds” doing?
@Tom
#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
@Ikonoclast
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.
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.
@paul walter
Makybe Diva has won the Melbourne Cup before but it would be unwise to bet on her winning it again.
@Tom
#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.
@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.
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.
http://www.bbc.com/news/world-europe-16834815
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.