>To be both ideological and realistic, they could have set aside money as the liability accrued rather than promising that future generations would pay it without worrying about how.
Governments everywhere tend not to do this, so it becomes impossible to sort out a rational picture of the economy when economics is inevitably highly politicised.
>Also, I think if the Greek government could print money, devalue the pensions and get out of this mess they would.
This will happen if Greece leaves the Euro. I don't doubt plans are in place.
But the underlying problem is that Germany and the IMF are simply loan sharking. And you can't loan shark in the Eurozone, because if you call in a debt too aggressively the whole project falls apart, with potential to seriously damage the Euro area economy, and possibly unwind the entire world economy too.
The only justifications for austerity are political - specifically to put the Greek government and the people who voted for it in their place, and to show them how little political power they have.
Austerity is not an economic solution. There is no possible way imposing austerity can make debt repayment more likely. Even the IMF has accepted this.
Austerity is simply a punishment for taking a loan from someone who's now trying to do the state-player equivalent of breaking a debtor's limbs because they're trying to pay late. "Reform" is econo-Kremlin code for "We don't like it when public money is spent for the benefit of the public."
So this is purely about face now, not facts or futures.
The real question from a game theory point of view is how much damage a Grexit would do. Some people in the game realise that it has the potential to spread and become a major market meltdown.
Tsipras and Varoufakis are certainly aware of this, and are playing accordingly.
It's not obvious how well the other negotiators understand this.
I think you are overstating the point about justifications for austerity.
The Greek government's finances were such that they consistently spent more than they took in, that is ho the debt accrued. Austerity/reform got it to the point where it spends what it takes in, without enough left to pay back loans. I doubt that it would have been politically realistic for Greek to do this without EU forcing them (and taking the blame).
This is a terrible thing even if it had ended here. Improving efficiency in this environment is nearly impossible, unless "inefficiency" means big chunks of fraud and theft. So, reform means reducing services, and creating unemployment. Say you have 10 firemen. You can fire 5, halving the firefighting you can do. 5 become unemployed, but unemployment costs are less than fireman salaries so you save the difference.
There is a political catch 22. These reforms are not too bad if done during economic good times, but they are politically impossible without some sort of unbearable pressure like insolvency (IE, can't pay salaries this month).
Any government can consistently spend more then they take in. Provided your GDP grows equal to or faster then then expenditures, you can do this indefinitely.
Individuals can and do this all the time too - that's what moving into the bigger apartment when you get a raise at work is all about.
That is the line of thinking which got Greece into this mess in the first place. Running a deficit on the expectation of ever increasing GDP works great until it doesn't, then you're fucked.
If you believe this I think youre going to be in for a big surprise when the baby boomers retire en masse. Chicago is probably going to go bankrupt in the next year or so because of overpromised pensions. Other cities are going to have issues.
> "Reform" is econo-Kremlin code for "We don't like it when public money is spent for the benefit of the public."
In 'Boomerang' a statistic is given that the public trains are so expensive that it would be cheaper to pay to have everyone that uses them go by taxi.
So I don't think Greece is exactly an innocent being bullied by 'econo-Kremlin' tactics whatever that means.
I agree, but tendency is not inevitability. Some countries (eg Australia and to an extent the US) have decent systems where instead of promise-pensions you have an actual bank account, with some amount of personal control. This specific is solvable, though moving from one system to another is very hard.
Governments everywhere tend not to do this, so it becomes impossible to sort out a rational picture of the economy when economics is inevitably highly politicised.
>Also, I think if the Greek government could print money, devalue the pensions and get out of this mess they would.
This will happen if Greece leaves the Euro. I don't doubt plans are in place.
But the underlying problem is that Germany and the IMF are simply loan sharking. And you can't loan shark in the Eurozone, because if you call in a debt too aggressively the whole project falls apart, with potential to seriously damage the Euro area economy, and possibly unwind the entire world economy too.
The only justifications for austerity are political - specifically to put the Greek government and the people who voted for it in their place, and to show them how little political power they have.
Austerity is not an economic solution. There is no possible way imposing austerity can make debt repayment more likely. Even the IMF has accepted this.
Austerity is simply a punishment for taking a loan from someone who's now trying to do the state-player equivalent of breaking a debtor's limbs because they're trying to pay late. "Reform" is econo-Kremlin code for "We don't like it when public money is spent for the benefit of the public."
So this is purely about face now, not facts or futures.
The real question from a game theory point of view is how much damage a Grexit would do. Some people in the game realise that it has the potential to spread and become a major market meltdown.
Tsipras and Varoufakis are certainly aware of this, and are playing accordingly.
It's not obvious how well the other negotiators understand this.