Tsipras and Varoufakis assume that a default would force Europe to choose between just two alternatives: expel Greece from the eurozone or offer it unconditional debt relief. But the European authorities have a third option in the event of a Greek default. Instead of forcing a “Grexit,” the EU could trap Greece inside the eurozone and starve it of money, then simply sit back and watch the Tsipras government’s domestic political support collapse.
Such a siege strategy – waiting for Greece to run out of the money it needs to maintain the normal functions of government – now looks like the EU’s most promising technique to break Greek resistance.....
For the EU authorities, by contrast, a Greek default would now be much less problematic than previously assumed. They no longer need to deter a default by threatening Greece with expulsion from the euro. Instead, the EU can now rely on the Greek government itself to punish its people by failing to pay wages and pensions and honor bank guarantees.
Tsipras and Varoufakis should have seen this coming, because the same thing happened two years ago, when Cyprus, in the throes of a banking crisis, attempted to defy the EU.....
As soon as Tsipras realizes that the rules of the game between Greece and Europe have changed, his capitulation will be just a matter of time.
What happens when you climb in bed with psychopaths. Can anyone explain to me the difference between this and Eastern Europe being trapped in the USSR?
Project Syndicate
Why Syriza Will Blink
Anatole Kaletsky | Chief Economist and Co-Chairman of Gavekal Dragonomics and Chairman of the Institute for New Economic Thinking
Project Syndicate
Why Syriza Will Blink
Anatole Kaletsky | Chief Economist and Co-Chairman of Gavekal Dragonomics and Chairman of the Institute for New Economic Thinking
4 comments:
does any of this invalidate what neil wilson said here?
http://www.3spoken.co.uk/2015/02/greece-and-art-of-liquidity.html
Basically the article says
1.Greece can keep spending euros through its own national bank issuing Liquidity Assistance to its member banks.
2. The ECB can only stop this by not allowing Greece access to the Target2 system, at which point the "greek euros" becomes a new currency and floats against the euro like any other world currency.
3. You then would want to restrict imports and impose some capital controls to overcome a short period of uncertainty in the currency markets.
Wake me when Greece is smart enough to do anything innovative (LA, TAN's, GRexit, etc, etc, etc)
Always remember that politics trumps everything.
Just because you can systemically prevent something doesn't mean that it will happen.
Systemically a plane will stay in the sky and fly along a path completely automatically and nearly every one in the sky does just that.
But if you have a pilot intent on flying it into a mountain due to his own personal beliefs, then that is what will happen - whoever else gets killed in the process.
"Can anyone explain to me the difference between this and Eastern Europe being trapped in the USSR?"
Didn't the Soviet Union subsidise Eastern Europe at its own expense, thereby hastening its own collapse? If only the EZ would do the same! Thing have come to a pretty pass when the Soviet Union's economic policy is more progressive then the EZ.
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