Home > Uncategorized > Someone didn’t get the Grexit memo

Someone didn’t get the Grexit memo

In this morning’s wonkbook, Ezra Klein passes forth a theory that the elites of Europe–perhaps understanding the true costs of their policy choices–are simply trying to force a Greek exit from the Euro.   The implication being, of course, that once the Greeks get the unceremonious boot in the figurative @$$, growth will resume as Germany and the ECB relent.

I have to admit, that it makes a kind of sense.   If Germany (especially) just wants Greece out, regardless of the cost, then crushing austerity with no end in sight–matched by a central bank refusing to do its job–would be one way to do it.   I’ve argued often in the past (although I’m not sure I’ve mentioned it here) that ‘Grexit’ would be best for the Greeks themselves, if austerity from Europe is taken as given.

Still, there is at least one major flaw.   A Syriza victory would have been the best excuse for that unceremonious booting… yet, instead of sitting on the sidelines during the campaign, European policymakers were effectively campaigning for the opposition.   For example, this from Guido Westerwelle,

 Germany would like to keep Greece in the eurozone, but whether Greece remains in the eurozone or not lies in its own hands

In not so subtle terms this means “if you elect the wrong people, we will kick you out”.   Or see this from Wolfgang Schauble;

We have learned a lot in the last two years and built in protective mechanisms… The risk of effects on other countries in the eurozone have been reduced and the eurozone as a whole has become more resistant

(Emphasis mine)  To me this means “the cost to Germany/Europe is low” if Germany/Europe where to pull the Grexit trigger.   I.e. the threat is credible.   Also see here for the metaphorical sigh of relief out of Germany; it is pretty clear which direction they were leaning.   If your goal was Grexit, then you would probably want the “makes Grexit more likely”-party to win, right?   So why the coy little threats?

You might not go so far as to call these “threats” or even manipulations, and fair enough.   But, as a game theorist, I see no difference.   Germany made clear to the Greek people the cost of non-compliance, that in my book is a threat and they made sure it was credible.

Matching my point with theory, I would say that if Germany really wanted Greece out, then strategic ambiguity was the clear optimal signal.   Germany wouldn’t want to say what they would be willing to do, since by so doing they would empower those most likely to do whatever necessary to stay–which is exactly what seems to have happened.

And if you think it was Syriza, specifically, that had all the Euro-elites hyperventilating–and maybe that’s true– then I have to ask, why?   As far as I can tell, Syriza is a pretty standard Social Democratic/Green coalition.   Social Democrats and Greens make up the left in pretty much every single nation in Europe.   That can’t be it.   More to the point, it was ND and PASOK that mis-governed Greece for decades.   You’d have to be crazy to think they were the reformers here.

No, the revealed preference of the Euro-elite is for greater austerity.    If you believe in economic rationality, even approximately, no other explanation stands up to the facts–theories about the perceived benefits of Grexit included.

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