Greece has defaulted on its 1.3 billion euro payment to the International Monetary Fund and the euro zone is still intact, but nobody has any clear idea about what will happen after next Sunday’s referendum.
Prime Minister Tsipras and Finance Minister Yanis Varoufakis, a game theory expert, have been playing a game of chicken with the troika ever since their Syriza party won the elections last January. All the Greek government wants is to be able to choose the shape of Greek public policy. All the troika – and some of its European partners, namely Germany – demands is for Greece to honor its commitments if it wants more ‘help.’ Unfortunately, the two demands are irreconcilable because they have only one aspect in common: austerity. Greek, indeed European, fiscal policy has been very austere over the past several years. The euro’s rise was pegged to the Deutschmark while the overarching preoccupation of the ECB has been to control inflation, forcing a collapse of the generally Keynesian policies that characterized the economies of many of the euro zone partners. Since the euro came into use in 2002, European governments have faced pressure to cut costs. Since 2010, despite the alleged Greek profligacy, Athens has cut spending more drastically than any other government in Europe. There have been double digit reductions in pension payments, jobs, salaries and investment. Unemployment has reached an optimistic 25%, youth unemployment is beyond 65%.
After years of false starts it appears that the ‘Grexit’ is finally in motion. Yet when the dust finally settles, this week will be remembered for its market volatility – not as the time when Greece kicked itself out of the euro zone.
