
In Greek Debt Puzzle, the Game Theorists Have It - Luc
http://www.nytimes.com/2015/06/05/business/in-greek-debt-puzzle-the-game-theorists-have-it.html?partner=rss&emc=rss&_r=0
======
netcan
_Virtually everyone agrees that a default by Greece is the least desirable
outcome for both Greece and its creditors_

That, I think is a key part of the problem. In the US context it's known as
too big to fail and applies to banks. In Europe it's unnamed.

The reality of every loan and every indebted entity is that default _is_ a
possibility. For a state to essentially become insolvent is no less likely
than an individual or company. For some countries it is virtually inevitable
on a 10-20 year scale. Before the euro, Greece dealt with this like all other
countries, by printing money. They use the cash to pay debts and the resulting
inflation actually helps manage national finances, that tend towards
inefficiency and overpayment to vendors, employees, etc. If loans are
denominated in foreign currency, debtors do not participate in the "haircut"
and the danger of inflation notches up a bit.

No one thinks this is an ideal system. It's certainly not better than not
becoming insolvent, but it usually works.

The Eurozone took this away without providing a working alternative. They
solved liquidity issues using bailouts, emergency loans and nationalisation of
debts and bad assets, but liquidity<>insolvency.

~~~
simonh
So essentially back when Greece had it's own currency, it could decreate the
cost of e.g. it's pension payments by printing more money, decreasing the
value of the payments without decreasing the face value of the pyments. They'd
pay pensioners the same amount in drachmas, but those drachmas would be worth
less. Now they are part of the Euro, the only way to cut the cost of their
pension payments is to actualy cut how many Euros they pay to pensioners.

For ideological reasons, the Greek government isn't willing to do that.
Membership of the Euro is a lens that reveals exactly how many clothes the
Emperor is or isn't wearing.

~~~
StavrosK
It's not just ideological reasons. If your pension gets cut, you suddenly
can't make rent. If your currency inflates, you can still make rent, because
your rent inflates just as much as your pension does.

~~~
zmb_
Rents tend to be inflation adjusted. Mine adjusts automatically every year
based on the inflation figures. So while your pension remains the same, your
rent will jump and you suddenly cannot afford it. The end result is the same:
You'll have to negotiate with your landlord (cut the price vs. skip the
inflation adjustment).

~~~
StavrosK
There's a clause in most contracts to adjust rents based on inflation here,
but not many landlords require it, because salaries haven't tended to rise
along with inflation.

------
wsc981
I thought George Friedman had some interesting perspectives on the Greece,
Germany and the dept crisis.

In this video [0], Friedman explains that keeping all countries in the Euro is
very important for the German economy (export + welfare state). And it seems
the Greece government uses this knowledge in their negotiations with the EU.

\---

[0]
[https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545](https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545)

~~~
ExpiredLink
Greece is 2% of the EU economy ...

~~~
netcan
..but more than 2% of germany's export market. Also, Greece is a sort of
canary for larger countries: Italy, Spain, Portugal, and to an extent, France.

~~~
eamsen
In 2014, Germany's exports to Greece grossed ~5 billion Euro [1] which is less
than 0.5% of Germany's total exports.

[1]
[https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands](https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands)
(for the lack of a better source)

~~~
netcan
I stand corrected.

*edit, does this include interest payments?

------
ExpiredLink
> _Some are painfully aware of the disaster that awaits Europe if Greece
> defaults. Others are less aware. Some are utterly unaware. They think it can
> be contained._

Greece's default is as important for the EU as Detroit's default was for the
USA. The rest is media burlesque.

------
thyrsus
Is the current government having any success pursuing tax fraud, which might
account for more than half the government's deficit?

[http://www.economist.com/news/europe/21565657-greek-tax-
dodg...](http://www.economist.com/news/europe/21565657-greek-tax-dodgers-are-
being-outed-national-sport-no-more)

~~~
LukaAl
I found no number to say Yes or No but the past plans was naïve at least on
this topic. A big reason for this it is that the constituency of all parties
play with tax fraud.

------
_cipher_
The sad thing in this (politics) is that no one gives a sh!t about real people
and real situations besides imaginary currency.

Over the last few years, while Greece sinks slowly due to financial situation,
IMF and Germany won't back on austerity measures demands. Even if, in reality,
those measures are making the country sink even deeper due to very low income
and chopping away peoples' pensions.

As I live in Greece, I can say for sure that the situation is getting worse
and worse over time. While Greece took huge loans over the last few years,
almost everything went to fuel German and French banks so they won't collapse.
Very little -if anything- was used to help the situation. But not even those
same countries acknowledge that fact. They demand "their" money that used to
fuel their banks. Smart thing (not).

Of course I could be a troll and mention that after WWII Germany received a
lot of help to be able to reconstruct the country, even if they slaughtered
millions across Europe. But that's politics. ;)

Personaly, I'm tired of all that bs. Europe is _not_ a union and this
situation is getting out of hand. Supposedly "friendly" countries demanding
everything from another member of the "union" is not what Europe was
-supposedly- all about.

At least with a new government that is able to say the word 'no' for a change,
almost anyone can see the true face of European "union".

~~~
Retric
Even if every Euro of Greece's debt was gone tomorrow the country would still
need more money every month than it gets in taxes. That's a long way from
Austerity.

There unbalanced budget is 100% Greece's fault and has absolutely nothing to
do with the EU. Long term the government has three options, collect more
taxes, pay fewer benefits, fail. It's obvious which one Greece wants.

PS: Actually paying down their debt is another issue and would require Greece
to maintain a surplus. Though, if they had that surplus they could just
default and probably be better off.

~~~
calibraxis
Is it then the US's fault, for supporting the Greek dictatorship which
incurred a large part of the debt?
([http://en.wikipedia.org/wiki/Greek_military_junta_of_1967%E2...](http://en.wikipedia.org/wiki/Greek_military_junta_of_1967%E2%80%9374))

Or is it Germany's fault, because Europe wrote off most of their debt in the
1953's (despite being LITERALLY Nazis...), yet they want to savage a populace
for illegitimate odious debt, as well as "payments to Greece" which actually
went to French and German banks? ([http://www.euronews.com/2015/04/17/chomsky-
says-us-is-world-...](http://www.euronews.com/2015/04/17/chomsky-says-us-is-
world-s-biggest-terrorist/))

~~~
Retric
Outstanding Greek debt is _irrelevant_. They could default tomorrow and get
rid of it all.

There problem is they need to borrow more money tomorrow, because their budget
is not balanced even if you ignore the debt. And if they default the money
truck keeping their country afloat stops showing up.

~~~
atmosx
Do you have any numbers to back up your claim? Please supply links w/ numbers
if possible.

~~~
aggronn
[http://www.wsj.com/articles/greece-expects-primary-budget-
su...](http://www.wsj.com/articles/greece-expects-primary-budget-surplus-
for-2015-1416567297) [http://finance.yahoo.com/news/greece-says-eu-imf-
lenders-095...](http://finance.yahoo.com/news/greece-says-eu-imf-
lenders-095625015.html)

Greece hasn't had a balanced budget in decades, and creditors don't believe
that 2015 will be any different. If they can manage to actually not run a
deficit in 2015, that would be a great boon for them.

------
throwaway12357
What would be the impact on the Euro currency if Greece left the Euro-zone?

I would guess the Euro would take a small hit, but bear (speculation) wouldn't
have much too feed upon.

This due to the fact that (1) Greece is a small part in the Eurozone and (2)
the other countries that were having problems (Portugal, Spain, Italy,
Ireland) seem to have things stabilized.

~~~
zhte415
I imagine the effect would be 'is this contagion'?

But perhaps a fear of bipolar contagion - will other weaker economies leave
(and the Euro become increasing like the Deutschemark - high, stable, low
interest rates) or will Germany leave (and the Euro become a currency
associated with volatility).

------
coldcode
The complexity of human behavior and the inability to model the real world
makes these types of "games" interesting to watch, unless of course it's your
money on the line.

The illustration of the three-sided chessboard was fascinating.

~~~
yk
The important thing about the three sided chessboard is, that one or more
parties may actually play capture the flag.

------
JamesBarney
Just to help correct a common misunderstanding that I've seen popup in thus
thread. Greece is running a budget surplus. The government is not spending
more than it's taking in[0].

[0][http://www.wsj.com/articles/greece-misses-target-on-
budget-s...](http://www.wsj.com/articles/greece-misses-target-on-budget-
surplus-1421244654)

------
pdkl95
Greece? Hmmm...

    
    
        You borrow at one and buy at ten
        You use the spread to bury the dead
        You bank it at four and Repo more
        Then go knock on the ECB's door
    

If you want a detailed explanation of how that trick worked - the moral hazard
trade that European banks took advantage of when the Euro centralized _money_
bu not _monetary policy_ \- and how a lot of people are trying to blame sweep
that under the rug and get other people ("the poor", mainly) to pay for it by
blaming Greece and insisting on dangerous austerity programs, highly recommend
Mark Blyth's[1] recent lecture[2].

[1] Prof. econ, Brown University and hilarious lecturer

[2]
[https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673](https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673)
(note: #t=673 to skip the unnecessary introduction)

------
danieltillett
The Greeks might have a problem with corruption, but they are not stupid. They
will find a way through this mess, but I suspect it won't be pretty.

------
venomsnake
A greek default is not greek problem but a german one. Let them default. The
Greek economy cannot realistically be more harmed. And Greece will still be in
the EU with the access to free travel and open market. No harm done.

~~~
chrisbennet
_" If you owe the bank $100 that's your problem. If you owe the bank $100
million, that's the bank's problem."_ \- J. P. Getty

