The Greek Mystery

First posted 07/07/2015.

This is a post about the Greek crisis, surprising as it may seem; it’s supposed to be a tragedy, not a mystery. Indeed, we were supposed to have known after the referendum what the outcome would be: Greece sliced out of the Eurozone. In our pride, something has been left unsaid: the sheer dearth of what we know happened during these Eurogroup summits. Same can be said about what happened during Syriza meetings, absent this Ambrose Evans-Pritchard piece about Syriza planning to send out IOUs as they prepare to run out of Euros.

This is a bit boggling to my North American mind, where there’s always a staffer in some political leader’s office willing to stab someone’s back off-record. The Greek crisis may seal the deal on the fate of the European Union, but we aren’t close to preparing a history of a four-year long event, absent the NSA snooping Merkel to reveal she knew Greek debt was unsustainable.

Let’s take this further. What does it imply when people accuse both sides of being slaves to “the idea of austerity,” “ordoliberalism,” “far-left ideology” or other such vagaries? It possibly implies said people don’t have a finer understanding of what’s motivating the sides here. On the non-Greek side, I count three exclusive incentives:

The incentive to retain credibility, marked by the theory that Europeans need to proceed in the usual creditor way to a defaulting Greece.

The incentive to maintain political control and totally carve out the Greek regime, expressed here and here:

The incentive to get our money back, either to continue an implicit bailout of banks with Greek sovereign debt (here) or to prevent a total default on the current two bailouts (here)

On the Greek side, I count two exclusive incentives: the incentive to build a leftist state in a defaulted Greece (Greek observers claim this a lot) or the incentive for rabble-rousing nationalism (what leftist critics of Syriza claim).

On both sides there is apparently the incentive for solidarity to a member of Europe, but if that was dominant we would have had a solution a long time ago.

We have 4–3 competing incentives on both sides, 18 players with veto power on the non-Greek side (since a third bailout or debt relief needs to be approved by every Eurozone parliament), and about a dozen players on the Greek side (the size of the Greek ministry). Many of the players got to where they are because of a coalition agreement — Syriza literally being a coalition of parties — and is under threat of veto.

How the hell can you predict or even speculate what has or will happen with so many permutations of scenarios?

A subtler point is that people have been keen to describe the Greek crisis as a conflict between the “Eurogroup” and “Greece.” But this partition of the status quo into two “coalitions” isn’t good for any predictive power unless you’ve predicted the prisoner’s dilemma outcome since 2011 — a Grexit.

While that is increasingly likely, the chaos governing these negotiations make speculation on a deal not easy. The same goes for what the fallout could be, in terms of changes in expectations toward European states, following Grexit. The same even goes for interpreting what was behind the decisions that led the Greek crisis to this point, before which tiny shifts in preferences exposed Europe’s unrobustness.

The more we talk about the endless summits and the contingency strategies, the more we hide the looming uncertainty. Uncertainty does not mean we’re headed for disaster, but it does dampen anyone’s ability to make a point about this whole crisis.

It’s a wholly different mystery why no one bartering in this chaotic system has started spilling the beans about the process, eliminating possible distributions of incentives across the players and the uncertainty. Or is Varoufakis the first one to do it, feeding Evans-Pritchard what he knows? Who the hell knows?

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