Like you, I’ve been watching at a safe distance the bitter wrangles and brinkmanship in Europe over Greek debt. It is horribly reminiscent of August 1914. Could the disaster have been avoided?
Europe’s financial establishment has been complaining that their Greek negotiators are childishly obstinate. Why don’t they just give in to the astonishingly detailed neocolonial prescriptions they have been mailed?
You don’t win a negotiation by being conciliatory. Possibly, the Greeks have been rather too sane. A proper mad negotiator would have threatened not just partial but complete default if forced out of the euro. What would Greece have to lose? Better wipe the slate of odious governmental debt clean, which would reassure new private lenders (cf the Soviet Union in the 1920s, Argentina). To protect German taxpayers, the correct strategy for Berlin and Brussels at this point would then be surrender on the terms already offered. This gets most of what they want and already more than Greek voters can stand.
Either you have the institution of debt bondage or that of bankruptcy. International law does not provide for the former. The attempt by France to enforce Germany’s Versailles reparations in 1923 by occupying the Rhineland did not turn out well, even from the narrow viewpoint of French taxpayers.
It’s true that Grexit would have costs for Greece too. In the short run it would be even worse for Greeks than the austerity hair-shirt, though it offers better prospects for growth a few years ahead. The non-cooperative bad payoffs still look asymmetric. However, my speculation is unrealistic. Tsipras campaigned on a promise to keep Greece in the euro, not to threaten to take it out. So Grexit is up to Germany, not Greece.
[Cross-posted at The Reality-Based Community]
