A Non-Post on the Greek Crisis and the Eurozone

A “non-post” because I do not think I know enough to have an informed view…

For one thing, I must confess that I do not understand how the Greek crisis wound up in its current state:

Back in 2010 it seemed very simple.

1. Greece needed to devalue, both
2. to reduce the burden of its unsustainable debt, and
3. to bring its real wage level back down to its real productivity in export industries.
4. Greece, however, could not do so because it had joined the euro.
5. Germany had benefited and continues to benefit an enormous amount from the incorporation of Greece into the euro. Why? Because
6. the incorporation of Greece weakens the euro, and so
7. helps Germany maintain its position as me fully employed export powerhouse.
8. The obvious solution was for Germany to pony up:
9. because Germany rightly values the euro in its current form,
10. Germany should Hey Greece enough
11. to make it a better deal for Greece to stay in the euro than
12. for Greece to exit from the euro, devalue, and recover economically.

None of that chain of events–it still seems to me that very logical chain of events–has happened.

So the question right now is: What offer is the Troika willing to make that will be better for Greece then exit from the euro?

And there are secondary questions:

• Why are we here with the Troika not having made such an offer?
• Does the Troika think it has made such an offer? Really? Seriously?
• Has Varoufakis lost, in that he failed to elicit such an offer?
• Or has he won, in that he has created a situation in which exit from the euro is now thinkable?
• Have Schauble and Merkel lost, because they have failed her to deal with what is after all a crisis of small magnitude for Europe?
• Or do Schauble and Merkel think they have won, because they think that being leg0shackled to the likes of Greece in monetary policy is a problem in the long run?
• And, if they do think they have won, have they?

Why are you still looking at me? Do you think I have answers to these questions? I do not. I do not understand European politics, and do not claim to. And I am not briefed up enough on the economics of the eurozone and Greece for me to understand where the line is between Troika offers to Greece that are better then exit, and those that are worse.

Paul Krugman: Scattered Notes on the Euro: “Grexit is Greece’s best hope…

…Otherwise, where is recovery ever supposed to come from? Even with massive debt relief, Greece will be forced to run huge structural primary surpluses…. What would be a straightforward policy problem if Greece had its own currency becomes an almost insoluble mess because it doesn’t. At some point the argument that the costs of a transition are too high wears thin…. I get interesting mail… along the lines of ‘I can’t believe that a far-left-wing type like you got a Nobel’. Because a lot of people seem to believe that real economists believe in sound money, preferably gold, and that only socialists believe that there can ever be any advantages to currency depreciation. Socialists, that is, like Milton Friedman. But of course modern conservatives get their monetary economics from Ayn Rand, not the Chicago School. Anyway, this isn’t anywhere close to over.

Wolfgang Münchau: Why the Yes Campaign Failed in Greece: “Tsipras[‘s]… opponents, both inside Greece and in the European Union…

…went wrong because of serial misjudgments, ranging from the petty to the monumental…. The biggest was the clearly concerted intervention by several senior EU politicians… Sigmar Gabriel… SPD chief… threats as an attempt to interfere in the democratic process…. The news last week that eurozone officials tried to suppress the latest debt sustainability analysis… did not help either…. The second error of the Yes campaign was a failure to explain how the bailout programme could work…. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity…. The third monumental error was arrogance…. Most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened…. Contempt for democracy and economic illiteracy are not merely tactical errors…. European monetary union… need[s] to be fixed, or it will end….

The Greek government will now insist on a very different deal with less austerity… consistent with the IMF’s latest calculations. I find it hard to see a majority in Germany in favour of such a deal. In fact, I believe the only way to coerce Germany into debt relief talks is to start defaulting…. Grexit is what happens when all the other possibilities have been exhausted. There are not many left now.”