Eurozone Fiddling While Greece Burns


Hmmm. Things are not looking good in Greece:

A meeting of eurozone finance ministers on Greece’s debt crisis broke up in acrimony on Monday evening, further dimming hopes of a speedy resolution to problems that could result in the new Greek government soon running out of money.

Just before the meeting ended, a Greek official dismissed the latest proposal by its European creditors as “unreasonable and unacceptable.” The proposal had called for Greece to abide by the current terms of its bailout program.

In other words: “Our offer is this: nothing.” Greece needs to toe the line and will be given no quarter. Paul Krugman considers the possibility that the eurozone ministers are just idiots, and finds it unlikely. They know exactly what they’re doing:

Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I.

Either way, the lack of wisdom is astonishing and appalling.

This is a helluva game of chicken everyone is playing. But Krugman might be right. There’s so much genuine acrimony on both sides—Germans think the Greeks are chronic liars and spendthrifts1, Greeks think the Germans are self-righteous bullies—and there’s so much political incentive not to give ground, that in the end, maybe no one will give ground. And then Greece will default and will get kicked out of the euro.

If this happens, it would certainly be catastrophic in the short term, but it’s possible that it would be better for Greece in the long term. Still, keep in mind that we might not find out. In the past, the standard pattern for eurozone crises was pretty simple: lots of threats back and forth, and no resolution until literally the last hour of the last day. We still have a couple of weeks to go, and it might work out the same way this time. Stay tuned.

1An opinion that may have calcified even further over the past couple of months as Greece’s finances deteriorated fairly badly. Short version here, details here.