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Beware of Greeks Bearing Debts
Final Greek Bailout Talks Fall Through

The final Greek bailout talks at Luxembourg have fallen through, and the EU will convene an emergency meetings of the eurozone heads of state in Brussels on Monday in response. The Financial Times quotes the president of the European Council, Donald Tusk, as saying “it is time to urgently discuss the situation of Greece at the highest political level.”

As Walter Russell Mead wrote this morning, “the long running Greek crisis appears to be heading toward some kind of major turning point, and I don’t mean that in a good way.” This is what that turning point looks like. While technically the Greeks have until the end of the month to repay the IMF €1.5bn and reach a bailout extension agreement, today’s meetings were widely regarded as the last chance to get a deal done in time to be fleshed out in detail, written up, and signed before the deadline.

To make matters worse, there’s no sign that the final moment of crisis, now that it has arrived, has produced or will produce a last minute course correction from the Greek leaders. (In fact, in a moment of what would be high comedy if the happiness of millions weren’t on the line, Greek PM Alexis Tsirpas apparently told French President Francois Hollande recently that Mrs. Tsirpas would leave him if he caved to Greece’s creditors).

So what’s next? Earlier this week, the FT ran a useful timeline of how things might play out that’s probably worth a look. If things go poorly on Monday, we are officially in uncharted territory, with capital controls being imposed and a slow-motion asphyxiation of the Greek economy a likely outcome. It’s important to note, however, that if we do get there, there’s no easy going back. Greece may not ultimately default, nor will it necessarily leave the euro even then. But returning to the exact status quo ante becomes next to impossible.

Since the beginning of the Greek debt negotiations, we’ve been using the supertitle “Beware of Greeks Bearing Gifts” for posts about it. (The supertitle is the little red tag line above the posts’s main headline.) A reference to the Trojan War, it was meant in part to convey a sense of the serious, if often unequal, struggle for the future of Greece (and the euro writ large.) If things proceed as expected, we may well have to switch to a tragic, rather than epic, reference. Perhaps to The Trojan Women—a play set in the ashes of a sacked Troy, where nothing remains of the struggle but the sufferings of the innocents.

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  • Pete

    This pipsqueak of a country has caused enough trouble. Greece should be expelled from the EU if it doesn’t have the good manners to leave on its own.

    • Andrew Allison

      Thanks to the “foresight” of those drafting the treaties, the EU, the Eurogroup and NATO have no mechanism for expulsion. Not sure about the UN LOL

  • Andrew Allison

    What we are witnessing is the spectacular failure of game theory practiced by a so-called “expert” who failed to grasp the rules of the game he was playing. Ironically, the Ancient Greeks had an absolutely appropriate word for this: Hubris.

    • Kevin

      As a game theorist (at least long ago in grad school) I disagree about the responsibility of game theory for the failure but agree about the hubris. Tsirpas just played his hand very poorly. The trick for the Greeks was to swallow their pride and come up with a “credible” plan and start implementing it in good faith. They could have gotten some EU money to offset some of the worst of the “austerity”. The IMF then has been quite clear that they were willing to cram down the ECB debt which they view as unsustainable. It would have been humiliating for the Greeks, and somewhat painful in the short run. However, most of the “Troika” was clear they saw writing down most of the debt as inevitable but weren’t willing to act on this until they thought the Greeks were being serious. Tsirpas’s moves have simply driven the accommodationists (such as the IMF) into the hardliners camp – he has consistently failed to exploit differences in the creditors.

      The Greeks’ problem was that the mispecified the structure and payoffs of the game they were playing. They been so caught up venting their own feelings (or playing to the home audience) that they didn’t properly examine the motivations (and hence likely future moves) of the other parties.

      If your looking for a classical analogy I would say it’s the Expedition to Sicily – the Athenian/Greek electorate elects the hotheaded leader who promises to take the fight to the enemy – but in their enthusiasm they follow a fool promising glory who simply enlarges their circle of enemies instead of following a patient and prudent strategy of hunkering down and outlasting their enemies – instead Athens will now suffers greatly and probably be razed in the ensuing catastrophe. And Alcibiades runs off to exile in the east.

      • Andrew Allison

        Kevin, I didn’t suggest that game theory is responsible for the debacle. It’s the game theorist (Varoufakis) who has shown himself to be incompetent. I’m inclined to believe that a large part of the problem with Tsipras is bad advice from Varoufakis. I agree with your analysis of what they should have done.

  • CapitalHawk

    It’s interesting that the Greeks are still generally playing by the rules. But how much suffering will they inflict on their own people before they don’t?

    For example, what would the rest of Europe do if the Greeks just had the Bank of Greece continue printing Euros (as it already does) and then spent them? No European country has the will or ability to mount an invasion, that’s for sure. I suppose they could impose sanctions, but if Greece is already in a massive depression, would they care?

    • mgoodfel

      I get the feeling that the Greeks think they can just stop paying and nothing will happen except more rhetoric. What if they are right?

      • CapitalHawk

        They may be, in the short term. But long term they will get cut off. Eventually the German’s will no longer just dump money into Greece. Unless the Greeks appear to be turning the corner. Then, who knows?

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    • Josephbleau

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