The Battle for Greece

The Greek story is being framed as a battle between the Greeks and the Germans and thus between spending and austerity. But this frame can’t make sense of the fact that, win or lose, large numbers of Greeks will vote for austerity on Sunday.

To understand what’s really going on, listen to this remarkable interview between NPR’s Robin Young and Nikolalos Voglis, a restaurant owner in Athens. The interview begins with a discussion of the crisis. No one has cash or credit and Voglis’s restaurant is basically shuttered. Young then asks Voglis how he will vote on Sunday and he replies, “Definitely, Yes.” Young is surprised, she tries to clarify, you will vote, “even for more austerity?” “That’s right,” he replies.

Following the conventional frame, Young finds this difficult to understand and she pushes back against Voglis with all the conventional arguments. She quotes Paul Krugman saying that the problem isn’t really Greece’s doing, that the IMF and EU are being too tough on Greece, that Greece has done a lot of cutting already and so on. Voglis responds:

We are on the right track but unfortunately the job wasn’t completed. We are a country in the European Community which has the biggest public sector in Europe. And all of us in the private sector spend millions to support the situation. So the only way that Greece can become a true Western country…is to make these reforms.

…Look the main problem in this country is the public sector. There is no other problem. Entrepreneurs here are very, very competitive. We have to let this thing, this monster that we call the public sector, it has to go, it has to finish. This is the main issue.

Many Greeks are sick and tired of the bloated public sector and its corruption, inefficiency and waste. In this frame, the Greek story is not fundamentally about Greeks versus Germans it’s about the Greek people versus their government–the Germans have simply been the vehicle that has brought the Greeks to their kairotic moment.  The Greeks want normalcy, as the Poles did after communism. If the Yes vote wins on Sunday it will be the Greeks voting not just against the current administration but against the entire state apparatus.


The Greeks have my sympathy but why, if they wanted a slimmer and more efficient public sector, did they elect a far-left party?

If this is the change they wanted, their actions should have been political.

This. It's almost like two people can have different opinions about major issues--even if they live in the same country!

Next thing you know, they're going to be telling us that "data" isn't the plural of "anecdote," after all.

Because they had little choice: all the parties were pro-Big State parties. That's a guess, based on the US analogy.

Yup. Even the center-right ND bent over backwards to protect the big state and its beneficiaries.

BUT the real issue is, I think, that reforms may be nearly impossible. We had the technocrat government of Papademos (a banker) and he couldn't get anything done either. The non-elected elements in the state wield a LOT of power and they are extremely deeply entrenched. Greece is not a country with strong rule of law, so even if reform legislation goes through there is no guarantee that it will be applied.

So even if, say, the quasi-"classical liberal" Potami wins the elections, their practical ability to effect change is going to be limited.

Big government will not go away voting yes. Austerity is for the poor and vulnerable, not for the political elites,

In Greece, as in many other highly corrupt, not fully developed democracies, the party of the left and the party of the right are essentially dueling political machines/mafias, who pretend to have an ideology. The same, for instance, was true in postwar Italy. The only way to reform the public sector and to take it out of the hands of machines is to elect outsiders. Who are the outsiders in Southern Europe? Ex-communists, sadly. Ideological cohesiveness and lack of power that kept them out of the politics as corruption game. We've seen this time and time again in Italy. The only economic and public sector reforms in Italy from 1991 until very recently came from the ex-communist left. The wealthiest and most successful Italian cities elected communist governments, because they were the only ones who provided public services effectively (e.g. Bologna).

Don't take it from me, this bizarre state of affairs is well described by Fukuyama in Political Order and Political Decay.

Unfortunately SYRIZA has combined forces with many ex center-left (PASOK) government members. The minister of justice, the minister of foreign affairs, the minister of health, even Varoufakis, are all ex PASOK.

They elected a far-left party because they thought it could maintain the status quo without reforms.

But now they can see the bank holiday and the empty ATMs and realize it could get a whole lot worse, and many presumably realize Syriza promised a great deal that it can't deliver.

It can be dangerous to assume an electorate is either well-informed or rational, but sometimes reality just becomes too obvious to ignore.

Exactly right. What we have witnessed over the past six months is an old-fashioned shakedown. Varoufakis has been threatening: If you don't go on paying the bills for our mismanagement of our economy, we will cause the collapse of the Euro. And so long as you resist our demands we will publicly vilify you as cruel, abusive and Nazis.

It worked for Greece before, so why not try it again? This time, however, Europe was better prepared and called Greece's bluff.

To me, the real tragedy is that many -- even most -- Greeks went along with this game plan. They voted into office a party, Syriza, that offered no plan -- and had even less will -- to reform Greece's economy so that the country could become self-sufficient. Syriza got elected on the strength of its promise to the Greeks that they did not need to make any tough choices because Syriza would extort more handouts from Greece's neighbors.

The Greek people are paying dearly for this act of stupidity and venality. But many of them have started believing their propaganda that they have been victimized. There are no possible compromises at the negotiating table that can bridge this gap. So the sooner the inevitable divorce comes through, and this farce comes to an end, the better.

One point I did not understand is why Syriza needed to announce this Referendum? Since Tsipras ostensibly wants to say "No" couldn't he have done that directly at the negotiating table?

Is this like how McKinsey gets called in before a big Corporate announces layoffs? "They told us to"?

I think that is right. I think Tsipras blanched at the prospect of being tagged as "Mr. No" who turned down an offer that might have spared Greece all the pain and grief of a default. This way he gets to spread the blame some.

No, it's like playing a game of "chicken" where you throw the steering wheel out the window. It's pretty clear he's playing games, and I think he thought by announcing the referendum, he could continue to get concessions but not give any (because you can't make the deal worse than what's getting voted on, even if you wanted to - you've given up control). I thought the EU's answer of "fine, then we wait for the referendum results" was exactly the right way to play it.

No, it’s like playing a game of “chicken” where you throw the steering wheel out the window. -

Thanks for the chuckle.

Buzz Gunderson didn't want to be there and caught his bomber jacket on the door latch by accident.

Only 36% of voters cast the ballot for Syriza this past January. That was still only a swing of less than 10 points from the 2012 election. And turnout was less than 2/3. So technically, a little over 23% of Greek registered voters voted for Syriza. I'm not sure it's fair to hang the whole country because a quarter of them obstinately voted to prioritize their pensioners and public employees over bondholders and taxpayers.


What you say sounds plausible, which is precisely the reason why it is urgent to show why it is specious. If democracy has any meaning at all, it is not only fair but imperative to hang the whole country. As Obama said, elections have consequences. In a democracy (barring electoral fraud or coercion) the people get the government they deserve. It is no excuse that some voters stayed home -- that is much an act for which they are morally responsible as going out and voting. It is only right that they bear the consequences. Syriza may have gotten 36% of the ballots, but between them Syriza and its coalition partners got a majority of seats in the Greek parliament.

I agree with Christine Lagarde who said that she felt more sympathy with children in Africa than tax evaders in Greece.

The headline right after the election: "Why Greeks voted for Syriza: ‘We have nothing left to lose’"

You have to put yourself in the shoes of a Greek votes standing in an unemployment line watching their country fall apart. The Great Greek Depression has lasted for 6 years and conditions are getting worse every day. Unelected foreign bureaucrats are bossing your countrymen around and forcing your government to take freebies away from your neighbors. Youth unemployment exceeds 50%. People with masters degrees are washing dishes for €200/week. Three generations are living under one roof and attempting to survive off of a single government pension...which has been cut by 30-40%.

Now some guy comes along and promises that all of the welfare cuts can be restored, all of the tax hikes can be repealed and the economy will grow again once we kick those meddling foreign bureaucrats out.

I can understand why some people might be tempted to vote for this guy. Huey Long would have gotten a large fraction of the vote too if he hadn't been assassinated.

Ergo, what we really need is more assassins!

Perhaps it was less about specific promises and more about the general direction of the country. Things were improving, but they were still pretty terrible, when Syriza came into power.

Rahul, nice one.

bjssp, I think that's precisely what happened. The status quo was failing the Greek people, they voted for change. They just didn't look too closely at what that "change" actually meant in practice.

I tried to warn as many people as I could in the January '15 elections but it was in vain. People are starting to understand that things can get WAY worse than what they are now, but unfortunately, not enough of them. My country is now doomed because these bolsheviks fooled people by telling them they can both keep us in the euro and restart the spending sprees of the past! I am beggining to think they had a hidden agenda all along, to bring us back to the drachma and out of the EU.

PM Alexis Tsipras went all-in, lost it all, and is now using the EU as scapegoats for his failure. He did manage to get himself into a win-win situation for himself and his party, by using the referendum to remove any responsibility for the 5 months he has been in power. This is what I believe can happen after this Sunday's referendum:
In case of a major YES win, he will resign and call for elections, with the banks shut, pensions & wages unpaid, and a dead market. He will again blame the EU and the previous governments for the mess. In a major NO win, he will pretend to go back and "negotiate" with the lenders, only to come back without a result and again put the blame on the EU, then he will either go for "Plan B" i.e. get out of EU, start printing inflationary drachmas or simply resign, and go back to his parliamentary comfort zone: being the opposition. In the cases of slight YES or NO wins, he will be "obliged" to call in elections due to the "unclear answer". In any case, he will be in a very good position compared to now.
These people are either huge amateurs or professional liars that have a hidden agenda. They have forged alliances with the most extreme and dangerous groups including neo-nazi Golden Dawn and far-right ANEL, supporting their parliament motion to initiate the referendum and standing together for a NO vote. The forces of populism have been brewing for decades and now all kinds of extremists (left or right) are seen as patriots, mostly for people with lower education, which makes things even worse.

I certainly wish for a YES win, even though this referendum is a complete farce, as it is asking to vote on a proposition that is no longer valid! The governement announced it in a dictatorial fashion by waiting until the very end of the bailout programme, one rainy Friday night! Of course banks never opened since except for some pensioners that are allowed to get a part of their pension. They changed the way the referendum is held overnight by shortening the length of time required to vote on it among other changes. When the French held a referendum on the EU constitution they had 5 or 6 months time to decide. Now, a decision that will shape the country for decades will be decided in _one_ week, and people still have no clue what it's about. The government is also breaching the constitution by placing pro-NO posters everywhere in the city, using (allegedgly) public funds.
In case of a YES win, we will at least be sure of Tsipras' resignation and establish a new pro-EU foothold in people's hearts & minds, and hopefully, arrange a better deal with Europe, with MORE free market reforms and LESS low-income pension cuts and tax increases.
A NO vote can lead this country to look like anywhere from Bolivia to Mozambique. It could be the beggining of a dictatorship or a civil war. This referendum has divided people over matters that most people have no idea what they are talking about, and reviving ghosts of the civil war between communists and loyalists.

What is also alarming is that there will not be any foreign observers to watch over the election process, which is why I have volunteered to be an electoral representative for the YES campaign, which, by the way, is the only official campaign. NO doesn't have an official campaign because then the Golden Dawn-Syriza-ANEL coallition will start to become official and things might get... awkward.

Because the only alternative was the same parties that created all this mess during last 20 years? And BTW this is not solely a problem of Greece. In the eastern Europe where I live people are sick of the old political system. Left or right, christian or socialist these parties basically made these countries their oyster. These parties created feudal-like system of patronage where you have powerful state bureaucrats (judges, prosecutors, politicians, CEOs of large state corporations) accompanied by powerful "captains of industires" - which is basically oligarchs who finance much of it. What was created is an extraction machine that sucks blood out of everything.

It is hard to describe political life in a country where you can literally take any single public tender out of thousands for goods or services and find balooned costs that are sometimes 10times of market value. You can have tender for a billion EUROs and the winner is off-shore company from Cyprus with unknown owners. And no standard politician cares because almost everyone does it. You have reports on daily basis of strange court decisions. In such a country corruptions becomes the lifeblood, you can either go with it or you will be crushed.

This is extremely dangerous situation. In this environment people can completely give up on politics and become disenfranchised - who wouldn't if you as a voter was betrayed for 20 years and counting. This poses no immediate problem for political elite, quite to the contrary. If everyone understands what type of state he lives in everybody starts to act selfishly. If politicians steal, if you are working for oligarch who does nothing and recieves big sums, if you are police officer or anyone really then you stop looking on larger political reality and start looking for yourself. Is there any party that wants to increase my income? Then many people will vote that.

On the other side as people lose faith in political systems formerly marginal parties and movements who have very dedicated core fans will become more important. That is why you see incredible rise of communist/fascist parties in many countries. Fascist golden dawn or maoist Syriza in Greece. Fascist Jobbik in Hungary etc. You can have people driving the antisystem wave - as is currently the case in Czech Republic. In the aftermath of large corruption scandals there was a new party voted to a governing coalition led by oligarch Andrej Babis, who is second richest man in Czech Republic. You see similar deadlock in Ukraine.

So to sum it up, this is not easy problem. To answer your question why people vote parties that can act against them in the end goes deep into some of the most basic political problem that people around the world now face.

People get the Governments they deserve?

I don't believe this and I actually find it offensive. Many people that immigrate to different country with better institutions are very successful. On the other side there are many people who were born to functional systems and they are destructive to their own society. How were these people born to societies that they "deserve"? It is like saying that people have global environment that they deserve. "People" or "society" are only mental abstracts. Only individuals are real.

Yes, but those people who immigrate aren't selected randomly. There's a strong selection effect there.

If the median Greek today was replaced by the top performing immigrant Greeks I'm sure Greece's problems would disappear.

Well, first of all they didn't vote syriza overwhelmingly. Syriza won 40% of the seats and they face a challenge now to get their Oxi vote.
Secondly, the state apparatus behemoth is not of syriza's doing but has been tolerated by both right wings and left wings governments. The failure of previous governments to turn around the economy left the Greeks with not much of a political alternative. It was an emotional vote, a desperate one

Mr. Voglis is spot-on. The kleptocratic parasitical statism Greece labors under has been growing and flourishing for decades, the public and quasi-public sector really and truly exploiting the productive, private one. A quite pervasive self-serving muddled leftist ideology cuts across, and may be one reason why there has been no effective political counter-action. The free market, entrepren eurship, profit are all deemed suspect if not downright evil by a substantial percentage of the population. Miseducation, indoctrination and lack of information are at the root.

While another restaurant owner in the islands says the opposite:

Is this going anywhere?

To bolster every Pundit's opinion there's a Greek restaurant owner somewhere.

I heard the Guardian once interviewed a cafe patron. Imagine the divergent views if they did more of that!

The Greek Restaurateur is the new Tom Friedman cabdriver?

Did she ask him if he faithfully paid all of his taxes since opening his restaurant???

If you knew that your taxes would fuel an incompetent and lazy state bureaucracy, would you think twice before paying the taxes? It's a trust issue that's going on in Greece and close to a social fracture

That's a good reason to vote "No". That'd give you a BIG fracture.

Concluding from an interview with one small businessman that the Greeks are voting against "the entire state apparatus" -- as opposed to, say, voting to stay with the devil they know (the euro) instead of the one they don't -- is like listening to an interview with a Berkeley academic and concluding that Americans are all secret Marxists.

Pretty much this.

I read that even if Greece defaults, they can't be forced to leave the Euro. Whether they change currencies or not will someone really be willing to lend to them? Wouldn't they be better off defaulting and staying in the Euro?

They have no money. They can't just print Euros on their own. If the default and nobody gives them money they will only be able to pay out IOUs - which are just drachmas by another name.

Do you really think they won't try to start printing Euros...

How many could they get into circulation before the ECB could actually put a stop to it?

At a minimum they will try to create a pseudo-Euros of one sort or another and see if they can convince people to treat it at anything close to parity.

This too will fail but there a lot of harebrained schemes left to be seen before this farce ends...

As a side note, one of the printing facilities for the Euro bill is in Greece. Historically they've only printed 10 Euro bills, but I wonder if they have the templates to do more, and whether Tsipras might take it over...

A floating currency gives those in power an opportunity to administer medicine that could not be administered by political deliberation. It reduces pensions, price floors and other such politically conferred privileges through the indirect tax of currency devaluation and inflation.


One interview should tell anyone and everyone nothing. There are, in fact, any number of pro-Euro factions many of which are anti-austerity. Some folks (a large faction) favor the Euro because they want their pensions, paychecks, and other handouts in Euros, not Drachmas. These folks are very opposed to austerity, but even more opposed to receiving Drachmas from the government. These folks hate the Troika, love Syriza, but will vote yes anyway.

Another faction is comprised of Greeks with bank accounts. A no vote means either banks accounts will be confiscated or converted into Drachmas. These folks may or may not like Syriza or austerity, but at this point fear is the only issue on the table.

Yet another faction is made up of basically conservative folks like the restaurant owner. These folks see the Euro as a tool for forcing the Greek government to reform. I don't think they are in correct in this matter. However, it is their opinion, not the correctness of their opinion, that matters.

Still another faction (center / left) sees the Euro as a symbol of Northern European efficiency, a large and well funded welfare state, effective and progressive taxes, modernity, the "tolerance" agenda, etc. Of course, they also see the Euro as means of bringing Greece up to the standard of Denmark of the Netherlands. I don't think they are in correct in this matter. However, it is their opinion, not the correctness of their opinion, that matters.

As you can see, lots of groups support the Euro for reasons that are highly divergent and in some cases contradictory. Some of these folks strongly oppose austerity. Others overtly favor austerity. They will all vote yes anyways.

Finally, let me offer a quote from a Greek citizen that sums up the situation all too well.

"The EU can't afford to let us fail so we should continue to say no and they will blink and give us a better deal."

This person intends to vote no. However, plenty of folks will vote yes precisely because they think that yes means more goodies from Europe. In one respect, the advocates of yes are probably very correct. A yes vote will probably be followed by a reopening of Greece's banks. That's one last chance to "take the money and run".

Great comment Peter Schaeffer.
I guess that the first group is the biggest and the most (rationally) ignorant of the likely outcomes. I get the sense from listening to a few interviews that the Euro as a symbol of Northern European efficiency group is also pretty big. They do not trust other Greeks to run things and believe that that is why they went into the Euro in the first place, but the northern Europeans could never send bureaucrats and police to run the Greek Government and so I think it will not happen the way that they hope.

The Mediterraneans should try classical liberalism, they ignore laws and do not pay taxes anyway and they can be quite compassionate to one another on an individual level so the welfare state is less needed, but the do need police to keep the thugs from robbing everyone.


At this point the whole Greek political-economy resembles a cargo cult - the only issue is how to best get the Germans to resume sending manna from heaven because they have not the foggiest idea what to do to create an actual functioning economy.

Greece has a lot more suffering ahead no matter what they do. They have not achieved the minimal steps to which they agreed to get the principal and interest reductions and restructuring in 2010 and 2011, and even if they had, the savings would not have been enough. They cannot expect to collect the taxes on businesses at the points of purchase which have not been collected since the military junta at least. They don't even have the infrastructure TO collect it: while there may be public employees with that job description, it is a task neither they nor those who trained them have ever actually performed. They have no clue how to do it.

Given the pain comes with austerity and staying in the euro means they will still have a crushing debt burden since they cannot pay it down in any reasonable time frame, why not bite the bullet, default and shed the debt, and start over? A deep recession would happen, but GDP has already been shrinking for years. After two or so years post-default, outside investors might see value again, and spur a real recovery and growth of industry which is lacking now. Of course, that is best-case and assumes Greece does implement some serious reforms on its own, which is no certainty.

Here's a different framing: Had Greece defaulted in 2010 how much would Eurozone creditors have had to write off? How much will they have to write off if Greece defaults now?

My question is: Have Eurozone creditors successfully cut their losses by going through this five-year delay?

Does that explain the hardline EU creditors are taking now? i.e. They've salvaged whatever they could of their exposure.

Makes sense.


The five-year delay has achieved one very crucial objective. The doomed debts have been shifted from the banks to the public sector. Pure crony capitalism.

Of course, Greece will never pay its debts. Everyone knows this (certainly including the Germans). The Germans are demanding that the debts not be written off officially ("extend and pretend"). The Greeks are demanding explicit debt cancellation. Since the German plan doesn't actually cost Greece anything, it is deeply foolish for the Greeks not to agree.

If it's so deeply foolish, why are they doing it?


"If it’s so deeply foolish, why are they doing it?"

Two theories come to mind. First, the debts have attained talisman/totemic importance. In other words, they have become a symbol that people fight over even, when the substance is gone. Second, some Greeks probably believe that if they could wipe out all of their current debts they could then resume borrowing on a large scale (which is what they really, really want to do).

The first theory is the more important one (in my opinion). Here is a simple test. Take a look at all of the arguments made in favor of debt relief. Try to find any claim of how this would actually make Greece better off (Greece isn't pay the debts or interest anyway).

Do you have any numbers? What was the EU zone creditor exposure in 2010 in event of a Greek default? And how much is it now?

I see various hand waving narratives but no hard numbers.

I think the problem may have been that continental banks tend to be thinly capitalized compared to British banks, which in turn are not as well capitalized as American banks. Limits on the book of the ECB vis a vis European banks (in comparison with the Federal Reserve or the Bank of England) may also have been an impediment.

@Art Deco.

Maybe you are right. What I'm digging after is to see whether the 5-year delay was a life support charitable mission from the benevolent EU like a lot of the EU press portrays it?

Or whether the 5-year stopgap was an astute and successful strategy by EUzone creditors to cut their losses before they dump Greece?


From this link below you can probably find your way back to the original BIS source (Stockman has a bad habit of not linking back correctly, and I don't have time to do the search for you). Prior to 2009, most of Greece's public debt was owned by various European banks, but after the bailouts, most of the debt is held by EU instituions, including the ECB. It was all just a way to bailout the banks.

Private Creditors Escape Greece

It reminds me of the student loan debt collectors who confiscate parts of someone's Social Security benefits.

They'll never get the whole debt paid back, but they can at least get *something* back. So long as some payment is being made, they can credibly continue to claim it as an asset on their books.

Once the payment stop, the debt has to be written off which imposes an immediate hit on the creditor's balance sheet.

They might, but exiting the EU means Greece will impose travel restrictions within the EU on Greek citizens, and remove Greek companies' right to export tariff-free within the EU.

And, the IMF will not cave: so long as it does not get paid, Greece will find itself unable to access international credit.

So, yes, they can Grexit. BUT, the price to do so is very high.

"I have an anecdote, and so victory is mine!"


Actually, no.

Public choice problems are the most serious counter argument to fiscal when you're dealing with fixed or implicitly fixed exchange rate.

Why? They have merit, with a lot of policy actions being taken to grease friends of policymakers in inframarginal ways. Often times these problems decrease economic efficiency while exacerbating inequality; see the bailouts of 2008, where many, many options to stabilizing aggregate demand existed (notably, by buying massive amounts of public debt) but we mysteriously selected the one that benefits Big Capital the most,. Nevermind the fact that trend RGDP appears to have taken a permanent downshift as a result of moral hazard and capital allocation problems, but hey, what's a few trillion and a permanently lowered rate of RGDP growth versus Ben being socially ostracized on Wall Street? These problems merit endless discussion, including discussions about anecdotes.

Fiscal is potent with fixed exchange rates. Fiscal can increase perceptions of social justice. Fiscal can theoretically improve economic efficiency - although the only anecdotes I'm thinking of are Germany in the 1930s and the US in the 1940s, when in both cases public choice problems were virtually non-existent.

Well, Greece has been 'doing Fiscal' for a couple decades now:

When you're in a hole, keep digging!

Contracting fiscal when there's widespread unemployment, a de facto fixed exchange rate for the bulk of Greece's trade, and 1% inflation equals what?

I get it.

Of these three options:

1. Continued rule by Syriza.
2. A new government, and German monetary policy.
3. A neoliberal government and leaving the euro.

I would select #3, but it ain't on the table right now. Maybe #1 is better than #2, maybe Draghi can prevail with some serious QE for the Euro (which would be somewhat helpful to Greece, despite the 'fixed exchange rate'). Not a lot of good options when you spend decades mismanaging an economy.

So, when does 'Contracting fiscal' make sense, in your view? Please review Greek history and tell me when you would have advocated such a policy. Ever?

It's called the "Representative Man" or "Agent" in economics. It's what got economics into trouble before the behavioral economists showed up.

That said, I think AlexT's mood affiliation is accurate, and many Greeks will vote for austerity under the theory (flawed IMO) 'no pain, no gain'. They should IMO do an Argentina.

A representative agent has to do with the separability of marginal utility of consumption and the marginal disutility of labor. It has nothing to do with behavioral economics.

Why does Alex equate "Yes" with austerity? If they did vote for "No", are the times that follow going to be any less austere?

See, this is why I love it when Rahul writes MR comments.

Because the vote is on desires and expectations not on realistic outcomes.

I thought the vote was about commitment - if No wins the Greek government goes back to Europe and says "see, you have to offer us a better deal or the whole thing goes to hell."

It isn't the dictionary definition of austerity that is being used, it is the recently-developed definition that goes something like: "Austerity is when the government spends fewer nominal (currency name here)".

No one will call it "austerity" if Greece dumps the Euro, converts all existing in-country Euros to NewDrachmas 1:1, then doubles everyone's pension while the Euro:Drachma exchange rate drops to 1:4. They'll call it "stimulus". The fact that the standard of living will be more austere is a separate issue these days.

So "Austerity" means tax increases & spending cuts?

Voting "No" means hyperinflation?


"Why does Alex equate “Yes” with austerity?"

Because... That's the actual wording of the referendum. The referendum is literally about accepting the Troika's latest offer. Of course, the real issue is the Euro. A strong majority of Greeks supported the Euro last week. With the banks closed, the yes faction has gotten even larger.

Because of the money illusion. Going to a new currency everyone gets hit with a tax all at once but they may not see it as a tax. The most useful skill for a politician to have is to know how to hide a tax and show a benefit.

Just ask Gruber.

"...everyone gets hit with a tax all at once...".

No, only people with savings get hit with a tax.

Polling data supports a yes vote. Dividing desperate people may be an effective strategy but I'll suggest it's immoral. Speaking of morality and a bloated public sector, I wouldn't be surprised if Tabarrok makes the same case for cutting social security benefits when baby boomers begin to retire in large numbers and everyone suddenly realizes that the $3 trillion social security trust fund has been spent on everything but social security benefits, from wars to offsetting income tax cuts, and doesn't exist. How and who will repay those IOUs in the file drawer? I don't expect the restaurant operator on Main Street will volunteer, nor do I expect bankers on Wall Street to volunteer. Like I said, dividing desperate people may be an effective strategy, but it's immoral.

Is there an obvious moral side here? Which one?

I don't think the Greeks need any nudge to be split on this vote. I'd be conflicted too. Seems hellish either way.

I can't myself see representatives from the EU Commission being expert at cutting corruption and bureaucracy: protecting them, yes, but not cutting them.

Anyway, how does a "yes" vote let them welch on their debt, which is obviously one of the things they are going to have to do?

'Hellish' -- a little excessive don't you think?

The Greeks are voting on whether they want:

(A) some public sector reforms, which will hurt some entrenched interests, but which is sweetened by a decent amount of resources from the EU


(B) continuing benefits to the entrenched interests but no more resources to the country as a whole from the EU

It is a classic concentrated benefits vs. disperse costs. This means I would, generally, go with 'No' winning event though it is clearly worse for the majority. However, the EU was quite smart to give the dispersed populace a taste of the costs. This has, almost certainly, swung the vote to 'Yes'.

Personally, I would prefer to see them vote 'no' followed by a quick grexit. I think that would be a disaster for Greece, a great step forward for the rest of the EU, and potentially a blow to 'progressives' everywhere.

if Tabarrok makes the same case for cutting social security benefits when baby boomers begin to retire in large numbers and everyone suddenly realizes that the $3 trillion social security trust fund has been spent on everything but social security benefits, from wars to offsetting income tax cuts,

The dimensions of American birth cohorts doubled between 1936 and 1957 before embarking on a 19 year long slide. The increase in size was not monotonic (there was some flux during the war), but it was pretty consistent if at a variable rate. The 'baby boomers' have been retiring for more than 15 years.

And, back in the real world, Social Security and Medicare benefits are now subsidized by general revenues. Given that FICA is 'invested' in Treasury issues, any surplus after benefits have been distributed will be 'spent' on things you do not like. Sorry to break it to you. While we're at it, speaking of a refrain from tax collection as 'spending' is accounting nonsense.

"I don’t expect the restaurant operator on Main Street will volunteer, nor do I expect bankers on Wall Street to volunteer"

You've identified the problem then. People vote for and support spending on various things, but are opposed to the taxes to pay for it.

"How and who will repay those IOUs in the file drawer?"

The Federal Reserve will just ease some more of course.

It's worked so far. Far beyond what I would have imagined possible.

Does the UST actually sell enough bonds to cover the government's annual deficit? I'm finding it hard to believe investors and foreign central banks are gobbling up $1 trillion a year in zero-interest bonds. This better keep working because when it ends it will sure be ugly.

Auctions for government debt are nearly always over subscribed by 3-4X.

There is a large amount of demand for Treasury Bonds from pension funds, insurance companies, large banks, etc. that need totally risk free assets.

I have no idea why a private investor would waste their money on these bonds though.

Again, the increase in the Federal Reserve's inventory of Treasury issues account for about 25% of the total increase in the stock of federal debt since the fall of 2008. They buy in the secondary market, if I'm not mistaken, not direct from the Treasury. There have not been any increases in their inventory since last fall.

I don't think this analysis tracks with the actions and sentiments we've seen from the Greek people. It's a nice reframing, and I truly believe Alex would like this to be the case, but if Greeks felt like this in general, how did they end up in this situation?

I believe it is a losing vote, no matter what they choose, if they even have the vote. Most Greeks probably understand this and don't see a heck of a lot of difference between the two options.

The choice they are making could be between a sharp excruciating pain of lesser duration versus a prolonged pain but of a lower intensity.

It's possible. I think there is a lot of uncertainty about which would be worse.

Yay, I found someone whose prejudices align with what I have believed since childhood, so we must both be right.

If a student advanced Prof Tabarrok's argument in a class assignment, he'd grade it a C- then write the student a glowing reference.

I'm sure there is a wide variety of opinions in Greece. Still, the one thing you can count on in politics is the prisoner's dilemma.

Everyday Greeks seem to have strong opinions on everything, anyways. That nation is an NPR interviewer's delight.

No Greek is even unsure. Nikolalos Voglis: "The only problem in Greece is the public sector. We have no other problem" I wish.

Come on - if the government could actually collect taxes, he would say something along the lines of the only problem we have is the effective tax collection like in Italy - we have no other problem.

So a reporter from the state supported sector finds it hard that someone would identify the "public" sector as a problem? This is a real puzzle.

Sumner, solid:

You'd been waiting to use the Greek "kairotic" hadn't you? Very apropos!



Any day I get to learn a new word can't be a complete waste.

This is more telling about NPR than it is about the Greek public.

National Pinko Radio would of course side with a leftist government.

I think the issues here are outside the skill set of the reporters to understand and their rolodex is offering contradictory signals. NPR and PBS are usually adept at framing issues in a tendentious way so that certain options are not discussed. I suspect that the reporters are being very fair in their own minds, it's just that their minds work routinely to dismiss out of hand someone who's thinking outside the frame. See discussions of immigration policy to see how this works in practice.

It was funny to hear Robin Young quote Krugman & then elaborate on who Krugman was as "a columnist here in the US".

Rare to hear of a Nobel laureate being introduced as anything but that.

Being a NYT columnist is much more important to an NPR reporter than a silly prize. His Pulitzer is no doubt far more important to her than an economics prize.

He doesn't have a Pulitzer. He has the Asuturias Award from Spain as well as a Loeb Award, but no Pulitzer. I kind of wish he had won it in 2008 along with the Nobel. Cleaning up all of those exploded heads from conservatives would have been a nice boost of stimulus just as the economy needed it.

He won the Nobel for work in trade theory done more than twenty years ago. The column his wife writes under his byline was not issued until 2001. His general-audience writing between 1989 and 2001 was nothing like his writing after that date.

How do you know his wife write's his columns?

And his writing, while aggressive, is hardly something that is indefensible. I doubt many here agree with him on the issues, but he felt like he needed to create a stir to get people to see through the Bush administration's facade.

And his writing, while aggressive, is hardly something that is indefensible.

I would refer you to the economists who've had occasion to comment publicly. Most, even those with a general-audience platform like Gregory Mankiw do not. The gist: your research as a theoretical economist does not provide you with insights into the motives of politicians or license you to offer false information in your column. See Daniel Okrent on attempting to get Krugman to consent to print any corrections at all: it was like pulling teeth.

It's too bloody bad. He had a general audience right, left, and center ca. 1995. He threw it away to write vicious polemics. Occam's Razor suggests the reason is -- that he does not actually write the column. His wife is a red haze import who is known to have a lunatic hatred of George W. Bush, to the point of burning effigies in her fireplace.

What Okrent piece were you referring to? The one where he accused Krugman of "slicing and dicing" data but failed to provide any evidence?

You don't need to issue corrections for having an opinion that people don't like or making a bad call. Krugman doesn't have to issue corrections because, unlike someone like Stephen Moore, his work isn't immediately called into question.

His reasoning for his tone is perfectly defensible. He wasn't calling Laura Bush a whore or saying anything out of line. He was attacking the administration over what he felt were deceptive claims to justify its actions. So what if he went after him in column after column? He's been up the ass of the Obama administration, too.

Not sure that he had a vast center right audience before he became a columnist, but his professional standing seems intact.

And you know, if you are going to make a claim that his wife, a professional economist who has left little indication of her personality, like she might in television interviews, both writes his columns and burned Bush in effigy in her fireplace, you could attempt to provide some proof.

Daniel Okret did not publish his inter-office memoranda to Paul Krugman, nor would any working adult have expected him to. He offered his personal account of what it was like to deal with him as a fact-checker. That account is credible. As for 'evidence' of Krugman's data manipulations, Krugman's critics have been offering counter-columns to specific columns for a dozen years or more. If you're not interested in reading about it, don't. It's not Okrent's job to proffer a bibliography to you.

Oooh, the guy with the pretentious moniker is sticking his head out of the foetid waters to issue garbage about Krugman. I have my own well known criticisms of Krugman, which A.D. probably is unaware of, although he thinks he knows everything about anybody who is not publishing under a fake monitor, but A.D. should stick to facts and not embarrass himself further with such drivel.

What are you talking about? What interoffice mail?

Orkney used to be The Times' public editor, of course, and he famously accused Krugman of slicing and data data to fit his arguments. He offered no examples of this. Krugman claims these concerns were never raised to him, and I have no reason to doubt him, nor do you. (He also, according to Krugman, bash his column unfairly, and then refused to print a correction.) What else did he do?

If you have some sort of record of what Okrent said it was like to work with Krugman, please share it. I am not aware of it. Okrent hasn't been the public editor in quite some time, and his tenure wasn't long to begin with. Did he publish something in CJR? Did he offer an interview with Howard Kurtz? What?

Most of the people who were on Krugman for years on end had no credibility and have since faded into irrelevance--Don Luskin, for instance. If you have some examples of him intentionally missing data, offer them. And I don't mean a mere disagreement about what data to use or a disagreement about the role of government. I mean a balls-to-the-wall example of lying--the kind that got Stephen Moore banned from the Kansas City Star.

And nice attempt to avoid offering support for your assertions about Krugman's wife.

Sorry, forgot the link:

What are you talking about? What interoffice mail?

You demand 'evidence' of Okrent's claim. The meat of Okrent's claim was that Krugman was nearly impossible to work with, in large measure because of an inability to admit error; if you want 'evidence' of that beyond Okrent's testimony, you're going to need their intramural communications. C'mon, this is not that esoteric.

"He doesn’t have a Pulitzer. "

I stand corrected. I thought he won in 2009 but he was one of two runners up.

Why would conservatives care if he won a Pulitzer? Its a liberal award given the liberal media figures.

For whatever reason, people are driven mad by Krugman. Any sort of recognition of him would probably cause them to have a nervous breakdown.

Saul Bellow won the Pulitzer after he'd won the Nobel. Joseph Epstein offered this: "that must have tasted like getting warmed-over instant coffee after having tasted first class cognac".

Given that you can still find topical commentary of vastly higher quality on newspaper op-ed pages, that award would have been an upraised middle finger. The left has grown remarkably sectarian in the last 25 years. It used to be that way on the margins (Victor Navasky, David Dellinger, Alexander Cockburn). Now that is their mainstream.

The problem is that the 'public sector' will burn the country down before giving up it's power and influence. They used to be called civil servants. I guess it doesn't fit anymore.

Russian apparatchiks did well with the collapse of the Soviet Union. They simply applied their well honed skills of thuggery and theft in the new environment. This restaurateur will have the same individuals coming by for a shakedown no matter how the votes are counted, whether there is a government left or not.

I should think if you lived in Greece you would feel differently if you'd spent a week not being able to pull your life savings from your bank. If it wasn't real before, it is now. I should think that this will have had a massive impact on public opinion in Greece since the election.

For example, if you're a private individual in Greece, what happens if at the point of a grexit you're bank doesn't re denominate my mortgage in drachmas? I should think that these questions now seem prescient, and this is why Greece will vote Yes on Sunday.

I should think also that the leadership in Greece know this, and are using the referendum to buy legitimacy for a volt face which retaining power.

Are Greek mortgages variable rate like most of those in Europe? I assume so, in which case rates woukd spike after a Grexit.

Are Greek mortgages (and small business loans) owed to Greek or foreign banks? Many mortgages and similar debt on Europe's peripheries are to foreign banks and denominated in Euros, Swiss Franc or the like. These could be very difficult to repay in the event of a default depending on how contracts are handled. Do the contracts state where disputes will be adjudicated? (Woukd any sane foreign bank pick Greek courts rather than German, Dutch or Swiss?) if Greece exits the EU rather than just the Euro maybe they can pass a law changing jurisdiction, but if inside EU that might be very tough.

It's absurd to say that behavior of the Greek private sector - including in terms of tax evasion and anti-competitive practices - has nothing to do with Greece's current problems. Surprising to see this sort of view endorsed on MR.

I've always got the impression that this is a dispute between Germans who don't want lazy foreigners to take their money and Germans who want the European project to succeed at all costs.

A dispute between Germans who will lose assets if Greek defaults, versus Germans whose money will burn to prop up Greece so that it does not default.

Again, the bulk of Greece's outstanding debt is held by public agencies. Wagers at this point the privately held debt was bought at a discount by people who trade speculatively in distressed issues.

While the public sector in Greece may be to big, I think that Greece could benefit from dropping the Euro and going to its own currency. Full control over its own monetary policy may have prevented this whole collapse in the first place.

Fascinating to think of a vote for the EU as against bloated bureaucracy.

There should be a law against listening to Paul Krugman.

Why? You might not like his views, but why else?

Nobody is pretending Greece has been run well in the run up to the crisis. Nor are they pretending that Syriza is innocent here. The source of frustration for most people like Krugman appears to be that the Eurozone creditors have made truly incredible demands that have plunged the country into a depression and show no signs of letting up. I guess, at some point, the economy will begin to grow anyway regardless of what happens, but really, at what point will that be? Just how is Greece supposed to get any growth with the demands made of it?

And why is nobody on the other side--not so much the right, since this isn't specifically a left/right issue, even if a lot of people on the right are similar to A.T.--criticizing the way the creditors acted?

'Truly incredible demands'?

The Greek public and political class have wanted a portfolio of goods that all cannot be had at the same time. Had all parties been sensible, you'd have had a bank holiday five years ago, the vault cash would have been sorted and the locally printed bills stamped as a mnemonic aid, and a new currency proclaimed at an opening value of one drachma to one Euro with all domestic contracts and all bank accounts renominated accordingly. Exchange controls for an indeterminate period of time would complete the picture as the currency was devalued. You'd also have had radical deregulation of the labor market. You'd have had real cuts in public spending and auctions of state assets. You'd have had comprehensive tax simplification and redoubled efforts at tax collection. You'd have had negotiations over the size of the haircut bondholders would take and an interim moratorium on debt service. You have had legislation promoting the use of bonuses derived from corporate earnings o'er a base wage or base salary as a means of compensating employees. You had none of these things.

Yes, producing primary surpluses, or even getting close to that, of 3-5 percent of GDPfor years on end when your country is in a depression seems like a truly incredible demand. Maybe insane would be the better word.

And nobody, not even your favorite target Krugman, is saying Greece is without responsibility here or that it didn't have to make adjustments. Why some appear to believe this is the case is beyond me.

I do not read Robin Wells' column, much less make her or her decoy-husband my 'favorite target'. I'll offer the hypothesis (as a layman) that a major vector in placing the country in this depression is their chronically over-valued currency, which the Greek public, the Greek political class, and the Eurocracy has been at one wishing to maintain. Devalue the bloody currency and have some tonic inflation. Worked for us in 1933. Quit borrowing from abroad, because you're going to have to because you cannot pay all of your debts. Reduce the induced sclerosis in your labor market because you've got horrible unemployment, and do that through deregulation and inflation.

I don't read his columns, either. I mostly check out his blogs posts.

But anyway, I never said you read his columns. You, like a lot of others here, seem to be obsessed with him, or at least talk about him quite a lot.

Maybe your suggestions would work. But making adjustments in a depression caused by unreasonable fiscal demands is probably harder than making them when there is no depression. Did the creditors have to demand this?

seem to be obsessed with him

Come again? Krugman is not one of my interests. He's just more dog-do on the sidewalk. You've confused me with someone else.

No, you've mentioned to him or felt the need to respond to comments about him quite a few times in this post.

I'm with you Alex but the pensioners will vote also.

But in the end Syriza didn't come to power by force. They were elected.

It's refreshing to see the US is not the source of constant bad news of a new mass killing in an elementary school, crumbling infrastructure, monstrous debt, being mired in police/military actions with shady nations with no goal or endstate, etc...Even though that is all facing the US currenlty or forms of.

Have you kept up with the situation in Puerto Rico? Marginal Revolution has had 3 posts since 2014 - aren't you a loyal reader?

a new mass killing in an elementary school, crumbling infrastructure, monstrous debt,

About 0.15% of all instances of homicide incorporate more than three victims. Over 95% have just one. The 'crumbling infrastructure' meme is a bit of fraud that reporters and politicos have favored for about 35 years now. The debt load is high but actually about normal for occidental countries in this day and age.

Greece's public spending is in line with all other Eurozone countries. Their problem has always been revenue collection and widespread tax evasion, not spending. Entrepreneurs in Greece are very competitive—so competitive that they frequently break the law.

This is more of a law enforcement problem than a policy one.

Additionally, according to USA Today, 17% of Greece's GDP comes from tourism. Wouldn't a switch to the relatively weaker drachma spur growth in this sector?

Not if it turns into a place nobody in his right mind wants to visit, unless he has a dying mother there or an interest in a human smuggling ring.

Tourism was a key source of hard currency for Romania in the 1970s. In the 1980's the sector essentially collapsed.

Greece’s public spending is in line with all other Eurozone countries.

No. It currently stands at 59% of GDP and has not seen a real reduction in the last 7 years, chatter about 'austerity' notwithstanding.

GDP has shrunk by 25 percent since 2009. That isn't helping the ratio.

That figure is exaggerated, dog-do-on-sidewalk, "Art Deco."

You're welcome to write them and complain about their published statistics or complain to their sources.

Your number is out of date, "Art Deco," It is down to about 51% now. Deal with it\; you are wrong, as usual. Did you consciously misrepresent the facts, or are you just ignorant, also as usual?

You know, I don't actually work for Trading Economics. If you have a complaint about the endpoints of their published data series, I suggest you take it up with them. Ditto the World Bank.

Total Tax revenue as percentage of GDP for Greece is 30%. The US earns less. Only 26%

What gives? Is this a bad metric to act as a surrogate for tax evasion?

In spite of the allegedly widespread tax evasion in Greece why are their tax revenues a higher percent of their GDP?

When GDP goes down a small amount of taxes can be a large percentage of GDP. Greek GDP is in the toilet so any amount of taxes could be a large percentage of their GDP. Nice try though.

Indeed. I dug up the older numbers & between 2003-2010 it averages at 20%.

It's not only Germany. Most EU countries are sick and tired of Greeks. I understand the fiscal burden is hard to support right now but they still need further reforms to slim down their state and improve institutional efficiency.

If you were alluding to the Battle of Chile, Tyler, I think you have a point.

Let's pray it doesn't end quite the same way.

Let's admit at the same time that was never possible to rule out.

Alex, sorry. My mistake.

Not sure why a journalist is so surprised that a business owner is opposed to capital controls so that the Greek government can continue to extract large amounts from business owners and transfer them to pensioners and state employees. All else being equal, we'd assume that the owner of a small business establishment would be the prototypical anti-Syriza voter.

If you liked the interview attached, you might enjoy the link below as well :-))) (h/t naked capitalism)

There definitely is that liberal right vs conservative left split in this vote. But since the "yes" vote here is for a foreign-funded reform program, and the "no" vote is for a domestically funded leftist reversal of such reforms, it's the "no" vote here that will lead to severity. If Greeks vote yes and promptly appoint a pro-European government, the Troika will even boost funding to try to repair the damage done since June 28 and get the economy back to where it was before then. If Greeks vote no, ECB funding to Greece will remain shut, the disbursals of €60/day from ATMs will soon dry up, and some kind of de facto new currency will be introduced. Since the governmen has already set up a committee to decide which priority importers can convert their bank deposit balances to euros, there's good reason to worry that the new currency will have a dual exchange rate of one-to-one with the euro for privileged parties and somewhere north of two to one on informal markets.

I meant to write: it's the "no" vote here that will lead to severe austerity.

Yawn. Cowen will still not actually deal with Varoufakis's ideas. "A Modest Proposal for Resolving the Eurozone Crisis" circa 2010--only have had 5 years to do so

Go there, give your own money. Go.

Greece would be far better off if the quoted restaurant owner got his wish- stay in the Euro and get the bloated public sector cut (and all the stupid regulations) down significantly. However, I seriously doubt a "Yes" vote will lead in that direction. The history of the previous bailouts is telling here- it will only kick the can down the road a short time until the new bailout money runs out, most of which would have been spent paying off the old debt, and we will just be back to where we are today, with Greece's debt burden higher than it is now, both nominally and with respect to GDP.

At least a "No" vote will lead to repudiation of the debt, forcing the EU to write it down, and will at least force the Greek government to do something to reliably fund itself. My suspicion is that the Drachma returns, the Greek government spends by printing vast quantities of it and Greece goes down the toilet economically. At least, at that point, maybe the Greek government can reform itself. One can hope.

That Stockman piece was fascinating. Thanks.

So, essentially, the EU voters were fooled into thinking they were rescuing Greece whereas in fact they were just bailing out their own banks. What has transpired in 5 years seems purely a transfer of money from individual EU voters to their own private banking institutions.

What a swindle. And now all the EU voter ire gets beautifully directed at Greece.

Stockman's lost his marbles. Would no longer trust anything he said.

Anything factually wrong in that Stockman post Yancey linked to? What parts do you disagree with?

I haven't bothered with him in the last three years. He made remarks in 2012 about Fed policy guaranteeing returns for people working in equity markets (in the course of trashing Mitt Romney's accomplishments in private equity). Given that since Stockman and Romney were of working age there have been five major implosions in equity markets, a long downhill slide which lasted 16 years (1966-82) and a lost decade (2000-10), his remarks were just madcap. Critics of Stockman maintain his curious public stances are a rationalization of his own misbegotten career in private equity.

Regarding the original post by Alex, so far not a single person has actually addressed whether or not the public sector in Greece is actually "bloated" as charged by this restaurant owner. As a matter of fact, the proportion of the workforce that works for the government is less in Greece than it is in Germany, France, or Italy, among other countries, around 30%. Of course, one can find a restaurant owner in almost any country, probably even in Hong Kong, who might make such a complaint.

The big issue is not the size of the public sector, it is the size of pension spending, the red line issue on which Tsipras and crew refused to budge because they said they would not when they were elected. While it has been cut 40% since 2010, it remains very high as measured as a percent of GDP and it is also higher than in such nations as Latvia, as earlier posts have noted. Maybe it should be cut further, but there is also a higher proportion of the Greek population that receives such pensions than in many other nations, and also more families as a whole are dependent on those recipients, given the 25% unemployment rate, which of course not a single person commenting on this thread has noted either.

So, while everybody and his brother has been running around denouncing Tsipras et al for calling their referendum, with many proclaiming that if as expected the Greek population votes "yes," the Greek government will fall, there is no reason whatsoever to believe that. Last polls I have seen show the current government as remaining very popular. A yes vote will let them violate their campaign promise and accept a cut in pension spending to cut a deal with the troika and continue with the depression and austerity without political blame.

And, no, this has nothing to do at all with a supposedly "bloated public sector." The article and the post are both just way off.

A yes vote would result in either a new coalition or new elections. Tsipras has said repeatedly he would resign.


What do you think they should do? What's the best strategy ahead for the Greeks?


Well, clearly what happens next very much depends on the outcome of the referendum, whether or not they should have held it. If the vote is yes, then clearly they will accept the latest troika proposal, with the remaining question being who is their government. I have not heard that Tsipras has said he will resign, but maybe he has. I have recently seen that Varoufakis has said he will resign. if they resign, then probably there will be elections. However, the most recent polls have shown Syriza still the most popular party despite some slippage, so the upshot may well be them getting re-elected, although perhaps others will lead the new government and do the kowtowing to the troika.

If there is a no vote, well, things are very difficult. Many say that means they will exit the euro, but there is no precedent for that and the legal situation is extremely complicated, with it not even clear if leaving the euro means also leaving the EU or not. Apparently they cannot actually be forced off the euro, as there are nations such as Montenegro that have adopted the euro, even though they are not members of the Eurozone, much less the EU (and there are nations that have adopted the dollar, such as Panama and Ecuador without ever getting any approval from the U.S.). Of course, the usual story about Grexit would be that they would face a near term decline in living standards as the new drachma would sharply devalue, thus raising the cost of imports. But then we would likely see greater growth within a few years as exports and mport substitution expanded, with Iceland and Argentina the poster boys for this. How they would do in the longer run would depend on what they do with other policies, and that is very hard to forecast.

If they do say "No" what's the point in staying monetarily on the Euro, even if allowed to?

Isn't that the worst of both worlds? No aid from EU & no chance to devalue the currency & boost exports.


Well, a biggie would be if indeed it is decided that leaving the euro would also mean leaving the EU. There are lots of other advantages tied to that, and it is pretty clear the Greeks do not want to leave the EU, which may in the end be what leads to a yes victory. Beyond that there is the fear of the short term costs and chaos that would accompany the leaving and devaluation, which could be pretty severe. Given how unprecedented this would be, there is also simply the fear of the unknown.

Professor, how do you clear a market when there is a surplus of goods or labor?

I posit this is the root of all Greek economic problems. The rest is handwaving and magical thinking.

Get the Germans to give it to you...

Tsipras may have been genuinely willing to take the deal. The hard-left of Syriza will not permit him to take it. Nothing short of complete repudiation of the debt of capitalist governments and exit from the EU and euro is acceptable to them. Expropriation of the bourgeoisie isn't compatible with membership of a club of bourgeois governments.

Not only would the government fall without their support, but Tsipras' partner Betty Batziana is known to be a hard-liner, going so far, it's said, as to threaten to end their relationship if Alexis capitulates.

On a personal level, Tsipras has little to gain from negotiating with the institutions in good faith, and much to lose.

So what you are telling me is that Greece is Europe's Illinois? Hey-o!

I have up a quick reaction to the IMF report that was released today. It's being widely misrepresented as calling for €50b of debt relief. What it actually says is that the EU and IMF would lend that much more to Greece in 2015-2018, under the June 26 offer. Of that €30b would roll over other retiring debts.

The report also reveals that Greece has run up €5b more arrears since May 2014. If all that was run up in the last five months, that's a pace of more than 6.5% of GDP. It was already known from Greek budget data that €2.6b of state budget expenditures were withheld in Feb-May, which is a pace of more than 4% of GDP. The point is Greece was living under much harsher austerity in the first five months of Tsipras' administration than it would have had he taken a deal early. And now access to cash is limited to €60 a day and many businesses won't take anything else. This is supposed to be throwing off austerity?

"Many Greeks are sick and tired of the bloated public sector and its corruption, inefficiency and waste. In this frame, the Greek story is not fundamentally about Greeks versus Germans it’s about the Greek people versus their government–the Germans have simply been the vehicle that has brought the Greeks to their kairotic moment. The Greeks want normalcy,"

Given the referendum's results, I'd say that no, that about 25% of the Greeks are sick and tired (about 40% of the about 65% that went voting).. which might be just about the size of the public sector. But the Greek people as a whole are with the government... for which they work for.

That's pretty similar to unionized workers voting something that will shut down the factory in 6 months because they might lose their jobs tomorrow. A different kind of tragedy of the commons, maybe.

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