Can Greece now leave the eurozone?

by on January 29, 2012 at 7:45 am in Current Affairs, Economics, Political Science, Uncategorized | Permalink

Meg Greene writes:

I have long thought that the troika would cut Greece loose and let it default and exit the eurozone once eurozone banks had been sufficiently firewalled. Perhaps this aggressive proposal by Germany is one of the unintended consequences of the ECB’s three year long term refinancing operation (LTRO). If eurozone banks have as much access to cheap, three-year ECB funding as their collateral allows, perhaps Germany and the troika have decided that eurozone banks can survive a Greek default. Greece is clearly insolvent and must leave the eurozone to eventually return to growth. The German proposal may have accelerated the inevitable.

I recall someone on Twitter noting that if Greek leaders turned fiscal sovereignty over to Brussels, the relevant parties would end up hanged for treason, or something like that.  I’ll predict against that outcome.  Angus adds comment.  The general point here is that apparent progress also makes it easier for parts of the Eurozone to unravel.  In this context what counts as “good news” or “bad news” can be quite tricky.

Badger January 29, 2012 at 8:42 am

Whatever the outcome, Greece has buried itself in its own hole. And no, they don’t have any firepower. Greece is nothing more than an excellent example of what happens when you chronically mismanage your house, and is been correctly treated as such by power handlers. The example is excellent independently of their choices. End game, EU wins.

Badger January 29, 2012 at 8:43 am

Sorry for the grammar assassination: “has been,” not “is been.”

Andreas Moser January 29, 2012 at 8:47 am

The Greek Finance Minister personifies Greek attitude towards austerity or reforms: “No thanks, we’ll keep spending other people’s money” – http://andreasmoser.wordpress.com/2012/01/24/evangelos_venizelos/ .

david January 29, 2012 at 9:22 am

Wow, is that entire post a fat joke?

msgkings January 29, 2012 at 1:17 pm

Greece is actually an example of a quasi-developing country trying to pretend it’s a first world one, and being encouraged to by other first worlders due to unique historical factors.

Greece to me ‘looks like’ a Peru or a Bulgaria (or a Sicily), with better tourism potential and a better back story, and never belonged in the EU.

msgkings January 29, 2012 at 1:29 pm

Too harsh, I meant never belonged in the Euro. The EU is fine for a wider variety of nations.

Manolis January 29, 2012 at 9:25 am

So Tyler, which is it, in this case?

A. Germans knowingly making an impossible demand simply to throw the ball at Greek side of the court and cause *them* to opt leaving.

or

B. Germans simply being fed up and knowing the non-linearity for the rest of the EU that would follow a Greek exit, honestly demanding that Greece gives up some sovereignty.

anonymous... January 29, 2012 at 1:18 pm

Why not both, simultaneously?

Greece will be an example for Portugal and the rest, either in a good way or a bad way. Ideally, as a pleasant surprise, they might be the good pupil who buckled down and turned his life around. Or they will be the bad pupil who dropped out of school and ended up living in a cardboard box on skid row, a cautionary tale for the other students who need to be scared straight.

Either way, the “phony war” phase of the crisis is coming to a close.

iya January 29, 2012 at 11:07 am

Greece will accept anything for more German/EU/IMF money. The ultimate prize might be institutionalized permanent subsidy, otherwise they can still default on an even larger debt.

Roy January 29, 2012 at 11:14 am

I think you are correct, knowing Greece, I would be very surprised if the method used was hanging.

athEIst January 29, 2012 at 11:27 am

They will stay in the EU.
BECAUSE
hanged for treason.
is not allowed in the EU.

Nobody January 29, 2012 at 2:30 pm

“once eurozone banks had been sufficiently firewalled. Perhaps this aggressive proposal by Germany is one of the unintended consequences of the ECB’s three year long term refinancing operation (LTRO).”

Unintended?
That was the plan, all along. since September and before. Since they had to wait for Mario D. to execute it.

What is the plan?

“A. Germans knowingly making an impossible demand simply to throw the ball at Greek side of the court and cause *them* to opt leaving.”

Somebody in Berlin has finally studied their copy of Machiavelli to get even with Athens. About time.

Manolis January 29, 2012 at 3:37 pm

Oh really…

So it’s all tit-for-tat, zero-sum games in world politics (especially EU), then?
All Germans want to do is punish and dominate, and all Greeks want to do is cheat and borrow?
Rather simplistic storyline if you ask me (however “Machiavellian” you may find it.)

If Germany wants Greece out, then there must a reason for it. So, which is it?

Nobody January 29, 2012 at 5:45 pm

Why the Germans want Greece out?

1) Because they are fed up with being fleeced. (never mind that they sold weapons and other luxuries to Greece helping to create the debt pile)
2) Because Greece will never get on its feet inside a currency union with Germany (Argentinia US till 2001 example, the permanent deflation pressure, if the currency is managed to suit the stronger country, inhibits growth in the weaker region, read Mundell 1961 on optimal currency aeras).
3) Imagine the blame poured on Berlin if they were to openly force Athens out….
4) To save the Euro for as long as possible, till the reality of 2) different productivity growth rates and no mechanism to deal with it inside a currency union catches up with Italy, France and everybody elses
5) It is everything but simplistic. As far as I am aware, as late asl August 2011, Berlin appears to have really believed that the Greeks were willing to reform – and they were willing to help. The mood seems to have changed in September, I do not know why and what brought the change in sentiment about.
6) This stupidity with “Germans want to dominate”, for all I hear, they would rather wash their hands of the whole business yesterday – if it weren’t for the Greeks demanding to be supported ….

Rahul January 30, 2012 at 1:34 am

@Manolis

What do you think is the Greek problem? What do you think the Eu should do about it?

Manolis January 30, 2012 at 4:05 am

Rahul,

Post 1981 Greece was on a steady but sure course of Sovietization with a hypertrophic public sector with tentacles in everything that moved, from business, to media, the arts, etc. It developed perverse mechanisms that favored cronyism, corruption and rentier/looting behaviors in almost all segments of the population. It systematically killed off production, innovation and healthy entrepreneurship in favor of subsidized consumption (whether overtly by the govt, by the EU, or by monetary stimuli both in the drachma and especially in the Euro era). Its struggle today is that of an old and cancerous system dying and fighting for its right to loot till their dying breath. Most media especially are in a frenzy as they realize that honest work might start to be the norm here.

That does not characterize everyone however. There is a healthy, energetic and hard-working private sector that is gasping for air today and whose voice is the least heard, simply because they’re doing their job, paying their taxes (mostly) and hoping that the world won’t end tomorrow.

I have no “patriotic” or “prestige” problem with the EU sneaking a “Greece commissioner” through the back door, but I find that:

a. It will not work for reasons of deep cultural rifts (look at how French banks have done in Greece-although that is as much a problem of the French being French as anything else), but also for reasons of differing interests/incentives (the commissioner wants debt payback at all costs-even if that means depression with no end-the “healthy” Greek minister should want debt payback *along* with a healing economy/society).

b. It is communicated in a rather clumsy manner (unless they indeed want to ignite “nationalistic” reflexes and start showing Greece the way out).

I think that the EU (Germany really) are just playing the classic political game of trying to get by with as little effort/resources as possible. Greece’s case is like olympic weighlifting…You either put in 100% effort (go all the way with a surplus recycling scheme) and lift the weights, or decide to step away without even trying (accept a new failed state in the Balkans). Trying to lift the weights with 60% effort will have them crashing down, while breaking your back in the process.

Trouble is, Germany doesn’t want another “integration” decade akin to that following their unification. In that case it was their eastern brethren they were “incorporating”. It’s a little tough for them to accept doing the same for those “lazy Mediterraneans”.

rjs January 29, 2012 at 3:21 pm
mulp January 31, 2012 at 12:14 am

Can we get straight to the point. Tyler is rooting for Greece to be booted from the Euro so Greece can finally tax its citizens and businesses. With inflation and then probably hyperinflation.

Hazel Tola February 19, 2012 at 1:56 pm

Interesting reason. I love to read it Marcy Lu

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