tag:theconversation.com,2011:/fr/topics/yanis-varoufakis-14621/articlesYanis Varoufakis – The Conversation2017-11-30T17:02:23Ztag:theconversation.com,2011:article/877772017-11-30T17:02:23Z2017-11-30T17:02:23ZSouth Africa should prepare for the worst case scenario: seeking help from the IMF<figure><img src="https://images.theconversation.com/files/196902/original/file-20171129-29143-lhq89b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">IMF Managing Director Christine Lagarde at the "G20: Compact With Africa".</span> <span class="attribution"><span class="source">Reuters/Mike Theiler</span></span></figcaption></figure><p>Prudence teaches that societies experiencing difficult and uncertain times should hope for the best but prepare for the worst.</p>
<p>South Africa should take this lesson seriously. It is facing a serious crisis. South Africa’s economy is <a href="https://theconversation.com/whats-at-stake-in-south-africas-new-finance-ministers-first-budget-85643">growing too slowly</a> to address its profound <a href="https://theconversation.com/a-shift-in-thinking-is-needed-to-counter-south-africas-startling-rise-in-poverty-83462">challenges</a> of poverty, inequality and unemployment. Social tensions are rising. Business is not transforming quickly enough. The <a href="https://theconversation.com/how-corruption-is-fraying-south-africas-social-and-economic-fabric-80690">governance and solvency</a> of key state-owned enterprises (SOEs) are collapsing. Government finances are deteriorating. <a href="https://www.iol.co.za/business-report/slip-in-south-african-credit-ratings-calls-for-reform-12168661">Credit downgrades</a> may limit government access to finance. The <a href="https://theconversation.com/eskom-ceo-saga-highlights-massive-systems-failure-in-south-africa-78432">institutions of governance</a> are decaying. The complex political situation is paralysing policymaking. </p>
<p>Countries facing analogous crises of confidence like Nigeria, Poland and Turkey have had to seek IMF support.</p>
<p>South Africa can hope that the situation will improve. But it should also plan for the possibility that it will not and that confidence in the government’s ability to manage its deteriorating financial situation will evaporate. This will lead to both higher borrowing costs and reduced access to financing for the government and state owned enterprises. It could also lead to state owned enterprises defaulting on their debts and their creditors calling in their government guarantees. As government loses the ability to fund its operations, it will be forced to turn to the IMF. It is the one organisation that can help it regain access to financing – on condition that South Africa agrees to implement an IMF approved set of reforms. </p>
<p>No-one wants an IMF programme for South Africa. First, it means the government accepting an outsider, dominated by rich countries, overseeing its economic policies. Second, IMF support will be conditioned on the country agreeing to painful reforms such as:</p>
<ul>
<li><p>Reducing the government’s budget deficit and the current account deficit so that it can meet its financial obligations</p></li>
<li><p>Deregulation and labour market reforms designed to encourage investment. </p></li>
</ul>
<p>But if South Africa begins preparing for this possibility it may be able to mitigate its worst effects and be ready to exploit whatever opportunities it creates. </p>
<h2>Negotiating with the IMF</h2>
<p>The South African government has considerable experience dealing with the IMF, which regularly visits each of its member states to consult about the state of its economy— the most recent <a href="http://www.imf.org/en/News/Articles/2017/11/08/pr17428-southafrica-imf-staff-concludes-visit">IMF mission visited South Africa</a> in early November. However, it is over <a href="https://theconversation.com/why-south-africa-shouldnt-turn-to-the-imf-for-help-82027">20 years</a> since South Africa negotiated a financing arrangement with the IMF. </p>
<p>Unless challenged, the IMF is likely to condition its financial support on a standard recipe of reforms. However, over time the IMF has become more amenable to supporting the programmes proposed by its member states. It has learned that, while there are similarities between macro-economic crises in different countries, there is more than one strategy for resolving such crises. In fact, the optimal solution depends on each country’s institutional arrangements, history, and particular economic, social, environmental and political characteristics. It also depends on the impact of macro-economic policies on such social factors as gender, equity and environmental and social sustainability. </p>
<p>Yanis Varoufakis, former Greek finance minister, reports in his <a href="https://www.ft.com/content/3d1a3470-f720-11e5-803c-d27c7117d132">book</a> on his experiences negotiating with Greece’s creditors that countries like Poland, through careful planning and shrewd negotiations, were able to convince the IMF to follow their plan rather than the IMF’s standard approach. His book also shows that the cost of failing to prepare adequately for negotiations like these can be very high indeed. </p>
<p>So what should South Africa do to ensure that it gets the best possible deal?</p>
<p>First, South Africa must establish clear and realistic objectives for the plan that it wants the IMF to support. Second, it must get its diplomatic ducks in a row so that it can strike the best possible deal.</p>
<h2>Fixing the budget</h2>
<p>As a priority South Africa should focus on restoring a sustainable budget situation. This will require government to make some painful policy choices about levels of expenditures as well as the purposes for which funds are allocated. </p>
<p>The government can build confidence in these choices if it can show that:</p>
<ul>
<li><p>the benefits exceed the costs and that the costs are being equitably shared. </p></li>
<li><p>Policy choices are based on both the human rights imperatives stipulated in the South African Constitution and on promoting growth.</p></li>
<li><p>it’s serious about addressing the governance problems in state owned enterprises and government departments. </p></li>
<li><p>it is complying with the legal procedures applicable to government finances and the open budgeting processes that it used in the past. </p></li>
</ul>
<p>Finally, government must encourage other social actors – such as business and labour who have contributed to the crisis – to help mitigate the pain. A demonstration of broad support would help convince the IMF to support the government’s strategy. </p>
<h2>Diplomacy</h2>
<p>As Varoufakis’ experience shows, the cost of under-estimating the impact of international economic diplomacy on the outcomes of complex international financial negotiations can be unacceptably high. </p>
<p>The South African government must therefore prepare to sell its programme to the IMF. This requires it to appoint negotiators who have a good understanding of both the IMF as an institution and global financial diplomacy. They can make the South African case in the way that is most likely to convince the IMF staff and Board of Executive Directors to support the South African programme. </p>
<p>These negotiators should also seek to exploit all the benefits that South Africa can harvest from its membership in the institutions of global economic governance. For example, they can tap the experience and expertise of groups like the G24, a lobby group for the interests of IMF developing member states in which South Africa participates, to help it prepare for these negotiations. </p>
<p>They can also draw on the stores of information in international organisations like the IMF, the World Bank and the African Development Bank that have had extensive experience dealing with developing countries facing macro-economic crises. Access to this information should be a benefit of membership. The executive directors that represent South Africa at these institutions can help the government gain access to this information and, if appropriate, identify the relevant experts to consult.</p><img src="https://counter.theconversation.com/content/87777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHI Chair is supported by the National Research Foundation. </span></em></p>South Africa will be well advised to start preparing itself for an International Monetary Fund programme as the country faces a deepening economic crisis.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/834692017-09-08T12:41:03Z2017-09-08T12:41:03ZYanis Varoufakis: a progressive Brexit transition can be built – on both sides of the Channel<figure><img src="https://images.theconversation.com/files/185160/original/file-20170907-9573-2zag9p.jpg?ixlib=rb-1.1.0&rect=416%2C91%2C5026%2C2834&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/big-waving-european-union-flag-yellow-704840977?src=qYxRCMsRYLyT42-Lkolfqw-2-30">UzFoto/Shutterstock</a></span></figcaption></figure><p>Insurgencies often end up betraying the ideals that motivated them. Brexit seems no different. In no time, it has shed its intellectually most powerful motive: the full restoration of sovereignty to the House of Commons. </p>
<p>Parliament’s sovereignty over the future of UK-EU arrangements has been dealt three blows since the Brexit referendum. First, Prime Minister Theresa May chose to interpret the referendum’s binary choice – without consulting parliament – as a vote for a hard Brexit. </p>
<p>Second, in triggering Article 50 without seeking the transition period necessary to give parliament at least one full term to deliberate over the long-term links with the EU, May essentially denied parliamentarians any say even on the form of hard Brexit that will follow. </p>
<p>Then came the third blow: the so-called great repeal bill, which caused even pro-Brexit MPs to erupt in anger during its first airing in the House of Commons, proposes to vest the government <a href="http://www.independent.co.uk/news/uk/politics/brexit-latest-theresa-may-powers-grab-plans-parliamentary-system-fix-a7935276.html">with inordinate power</a> to amend EU laws as they are converted into UK laws, without even consulting the house.</p>
<p>So, while the EU is exploiting Brexit to practise its authoritarian incompetence (demanding, for example, that London negotiates with bureaucrats lacking a genuine mandate to hammer out issues like a free trade agreement), Brexit is also being used by the British government to push the country on a long slide toward May’s own brand of authoritarian incompetence. None of this augurs well for the people of Britain or, indeed, for Europeans at large. </p>
<h2>Averting catastrophe</h2>
<p>What should be the progressive response, on both sides of the Channel, to this disaster-in-the-making? Before the referendum, my own organisation, the Democracy in Europe Movement 2025 (DiEM25), advised the UK Labour party <a href="https://www.theguardian.com/politics/commentisfree/2016/may/28/brexit-empire-era-trick-radical-case-for-europe-lucas-mcdonnell-democracy-eu">to adopt our “radical remain” line</a> of “IN the EU, against this EU”. The Labour party did adopt this position, albeit half-heartedly, but in the end the people of Britain decided to vote Leave. As democrats we must respect that verdict. But as progressives, we have a duty to confront the minority Tory government’s dalliance with a catastrophic Brexit. </p>
<p>Immediately after the referendum, DiEM25 was the first Remain-supporting movement to respond with a positive proposal. Refusing to be downhearted, to vilify those who voted Leave, or to call for a second referendum (or parliamentary vote) by which to annul the will of the majority, we proposed that Article 50 be triggered while, at the same time, London filed for a five-year <a href="https://www.economist.com/news/europe/21716039-sooner-or-later-britain-will-face-trade-offs-between-sovereignty-and-access-norways-deal">Norway-style arrangement</a> to come into force after the initial two year period lapses. </p>
<p>May felt her political room for manoeuvre was limited of course, but had she adopted that option, then freedom of movement, the customs’ union, the European courts’ jurisdiction, Britain’s contributions to the EU budget and so on, would have remained unchanged until 2024. The EU bureaucracy would not have been empowered to carry out the hatchet job it is currently mandated to do, and the House of Commons would have had the opportunity to debate properly, and in peace, both the future UK-EU relationship and a British constitution is desperate need of revision. </p>
<p>Crucially, it would also have meant that the German chancellor, Angela Merkel, could have relaxed – with the happy news that the Brexit hot potato was thrown into the lap of her successor.</p>
<h2>Two to tango</h2>
<p>In recent weeks, I have noticed with pleasure that Corbyn’s Labour party, alongside <a href="https://www.theguardian.com/politics/2017/aug/01/cross-party-mps-force-vote-staying-eea-brexit">some key Tory MPs</a>, have adopted <a href="http://www.bbc.co.uk/news/uk-politics-41064314">the same proposal</a>. Now that this is becoming mainstream, it is crucial that we take it further by specifying in greater detail what that transition period should aim at and what follows afterwards. </p>
<p>The unambitious, regressive, conservative aim for a transition period is that it would create the time and space necessary for a virtually unchanged UK to find an accommodation with a virtually unchanged EU. However, this would be a betrayal of all those people in Britain who cast their vote for Corbyn’s vision of a radically transformed UK. </p>
<p>It would also be seen as a lost opportunity by those of us in continental Europe who do not believe that this EU can or should stay as is. In this sense, progressives must work toward a transitional period during which the aim is the progressive transformation of both the UK and the EU.</p>
<p>What would such a progressive transformation be like? In the UK the election manifesto that Labour took to the polls back in June is a good start. As for the progressive transformation of continental Europe, the economic and social policy agenda we presented in March, DiEM25’s <a href="https://diem25.org/end/">European New Deal</a>, offers a tangible, realistic but also far-sighted manifesto for every European country, independently of whether it uses the euro or not. The adversarial tone of Brexit talks thus far is of little use to anyone. Instead of arm-wrestling to secure the competitiveness of one European country against another, a transition period would allow Europe, including the UK, to focus on boosting productivity in green sectors across the continent, and sharing in the benefits that flow from that.</p>
<p>The present trends point to a dreadful outcome: a clueless Tory government and a degenerate EU bureaucracy locked in a pointless conflict. But progressives should never respect present trends. We must dare to dream of a Corbyn-led government in the UK, and of progressive, DiEM25-linked parties scoring similar successes in a swathe of EU countries by the 2019 European Parliament elections. That could clear the path towards a second UK referendum in or around 2025 when a transformed Britain enters a European Democratic Union. Dare to dream: and then work damned hard towards realising that dream.</p><img src="https://counter.theconversation.com/content/83469/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanis Varoufakis is co-founder of DiEM25. The views expressed are his own.</span></em></p>A clueless Tory government and a degenerate EU bureaucracy are locked in a pointless conflict. There must be something more than this.Yanis Varoufakis, Professor of Economics, University of AthensLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/685232016-11-11T17:44:21Z2016-11-11T17:44:21ZTrump victory comes with a silver lining for the world’s progressives<figure><img src="https://images.theconversation.com/files/145585/original/image-20161111-9050-qzhxvt.jpg?ixlib=rb-1.1.0&rect=3%2C0%2C2044%2C1149&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/walter12345/25303336356/in/photolist-ExYdkW-cXNj3h-GPbtJS-Qgjq-HDkeNK-DnKbm7-bhAmw-AKBvx-5qY7j-B2fmcE-JgLC4f-C6qqgP-Cz6yph-HvPTSG-APATj-yiLiW-zyi8S-ax2D4N-FtkeR-CDVE3c-CcNcNy-C6qpRk-5sQFHr-E61uMW-pnKuW6-6Aw7aG-PbNc7-qLdx8t-54G2Fh-DkBb6o-8uN4fb-9hgCRf-G3EA7d-Duwcc9-4s5pAY-CnCkzq-9hgxgh-Jpibu9-6nM8gR-6Rasup-H1zLaG-xnk7CG-54FXRA-GvkLGL-C3sPCy-EEcJoV-GDhaC9-GkvG8s-Cbe9BR-Cbe9e6">Michael Hogan</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The <a href="https://theconversation.com/uk/topics/2016-us-presidential-election-23653">election of Donald Trump</a> symbolises the demise of a remarkable era. It was a time when we saw the curious spectacle of a superpower, the US, growing stronger because of – rather than despite – its burgeoning deficits. It was also remarkable because of the sudden influx of two billion workers – from China and Eastern Europe – into capitalism’s international supply chain. This combination gave global capitalism a historic boost, while at the same time suppressing Western labour’s share of income and prospects. </p>
<p>Trump’s success comes as that dynamic fails. His presidency represents a defeat for liberal democrats everywhere, but it holds important lessons – as well as hope – for progressives.</p>
<p>From the mid-1970s to 2008, the US economy had kept global capitalism in an unstable, though finely balanced, equilibrium. It sucked into its territory the net exports of economies such as those of Germany, Japan and later China, providing the world’s most efficient factories with the requisite demand. How was this growing trade deficit paid for? By the return of around 70% of the profits made by foreign corporates to Wall Street, to be invested in America’s financial markets. </p>
<p>To keep this recycling mechanism going, Wall Street had to be unshackled from all constraints; leftovers <a href="http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/usa/newdealrev1.shtml">from President Roosevelt’s New Deal</a> and the <a href="http://news.bbc.co.uk/1/hi/business/7725157.stm">post-war Bretton Woods agreement</a> which sought to regulate financial markets. This is why Washington officials were so keen to deregulate finance: Wall Street provided the conduit through which increasing capital inflows from the rest of the world equilibrated the US deficits which were, in turn, providing the rest of the world with the aggregate demand stabilising the globalisation process. And so on.</p>
<h2>What goes up</h2>
<p>Tragically, but also very predictably, Wall Street proceeded to build unfathomable pyramids of private money (also known as structured derivatives) on top of the incoming capital flows. <a href="http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article">What happened in 2008</a> is something small children who have tried to build an infinitely tall sand tower know well: Wall Street’s pyramids collapsed under their own weight.</p>
<p>It was our generation’s 1929 moment. Central banks, led by US Fed chief Ben Bernanke, a student of the 1930s Great Depression, rushed in to prevent a repetition of the 1930s by replacing the vanished private money with easy public credit. Their move did avoid a second Great Depression (except for weaker links such as Greece and Portugal) but had no capacity to resolve the crisis. Banks were refloated and the US trade deficit returned to its pre-2008 level. But, the capacity of America’s economy to equilibrate world capitalism had vanished.</p>
<p>The result is the Great Western Deflation, marked by ultra low or negative interest rates, falling prices and devalued labour everywhere. As a percentage of global income, the planet’s <a href="http://www.nytimes.com/2016/10/25/business/dealbook/as-europe-and-asia-hoard-cash-economists-see-echoes-of-crisis.html?_r=0">total savings</a> are at a world record level while aggregate investment is at its lowest. </p>
<p>When so many idle savings accumulate, the price of money (ie. the interest rate), indeed of everything, tends to fall. This suppresses investment and the world ends up in a low-investment, low-demand, low-return equilibrium. Just like in the early 1930s, this environment results in xenophobia, racist populism and centrifugal forces that are tearing apart institutions that were the Global Establishment’s pride and joy. Take a look at the European Union, or the Transatlantic Trade and Investment Partnership (TTIP).</p>
<h2>Bad deal</h2>
<p>Before 2008, workers in the US, in Britain and in the periphery of Europe were placated with the promise of “capital gains” and easy credit. Their houses, they were told, could only increase in value, replacing wage income growth. In the meantime their consumerism could be funded through second mortgages, credit cards and the rest. The price was their consent to the gradual retreat of democratic process and its replacement by a “technocracy” intent on serving faithfully, and without compunction, the interests of the 1%. Now, eight years after 2008, these people are angry and are getting even. </p>
<p>Trump’s triumph completes the mortal wounding this era had suffered in 2008. But the new era that Trump’s presidency is inaugurating, foreshadowed by Brexit, is not at all new. It is, indeed, a post-modern variant of the 1930s, complete with deflation, xenophobia, and divide-and-rule politics. Trump’s victory is not isolated. It will no doubt reinforce the toxic politics unleashed by Brexit, the undisguised bigotry of Nicolas Sarkozy and <a href="http://www.politico.eu/article/yes-president-marine-le-pen-is-now-more-possible-trump-clinton/">Marine Le Pen in France</a>, the rise of the <a href="http://blogs.spectator.co.uk/2016/09/alternative-fur-deutschland-forced-german-politics-right/">Alternative für Deutschland</a>, the “illiberal democracies” emerging in Eastern Europe, Golden Dawn in Greece. </p>
<p>Thankfully Trump is not Hitler and history never repeats itself faithfully. Mercifully, big business is not funding Trump and his European mates like it was funding Hitler and Mussolini. But Trump and his European counterparts are reflections of an emergent Nationalist International that the world has not seen since the 1930s. </p>
<p><a href="https://www.britannica.com/topic/Weimar-Republic">Just as in the 1930s</a>, so too now a period of debt-fuelled Ponzi growth, faulty monetary design and financialisation led to a banking crisis that begat deflationary forces which bred a mix of racist nationalism and populism. Just like in the early 1930s, so too now a clueless establishment aims its guns at progressives, such as Bernie Sanders and <a href="https://www.theguardian.com/commentisfree/2015/jul/01/syriza-cave-in-elites-regime-change">our first Syriza government in 2015</a>, but ends up being upended by belligerent racist nationalists. </p>
<h2>Global response</h2>
<p>Can the spectre of this Nationalist International be absorbed or defeated by the Global Establishment? It takes a great deal of faith to think that it can, in view of the Establishment’s deep denial and persistent coordination failures. Is there an alternative? I think so: A Progressive International that resists the narrative of isolationism and promotes inclusive humanist internationalism in place of the neoliberal Establishment’s defence of the rights of capital to globalise.</p>
<p>In Europe this movement already exists. Founded in Berlin last February, <a href="https://diem25.org/">the Democracy in Europe Movement</a> (DiEM25) is attempting to achieve that which an earlier generation of Europeans failed to do in 1930. We want to reach out to democrats across borders and political party lines asking them to unite to keep borders and hearts open while planning sensible economic policies that allow the West to re-embrace the notion of shared prosperity, without the destructive “growth” of the past. </p>
<p>But Europe is clearly not enough. DiEM25 is encouraging progressives in the US, who <a href="https://berniesanders.com/stream/">supported Bernie Sanders</a> and <a href="http://www.jill2016.com/">Jill Stein</a>, in Canada and in Latin America to band together into a Democracy in the Americas Movement. We are also seeking progressives in the Middle East, especially those shedding their blood against ISIS, against tyranny, and against the West’s puppet regimes to build a Democracy in the Middle East Movement. </p>
<p>Trump’s triumph comes with a silver lining. It demonstrates that we are at a crossroads when change is inevitable, not just possible. But to ensure that it is not the type of change that humanity suffered from in the 1930s, we need movements to spring out and to forge a Progressive International to press passion and reason back into the service of humanism.</p><img src="https://counter.theconversation.com/content/68523/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanis Varoufakis served as Greece’s Finance Minister (January to July 2015) and is co-founder of DiEM25.</span></em></p>The US election confirmed the death of an extraordinary economic era. Now, control of the next must be wrested from the emboldened nationalists.Yanis Varoufakis, Professor of Economics, University of AthensLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441112015-09-19T08:47:16Z2015-09-19T08:47:16ZI’m standing in the Greek election as an alternative to Syriza’s deception<p>When the Greek people vote <a href="https://theconversation.com/why-leaving-the-euro-is-back-on-the-agenda-in-the-greek-election-47601">in Sunday’s election</a> they are being asked to offer their judgement on former prime minister, Alexis Tsipras, and his Syriza government. That judgement should be harsh.</p>
<p>During a fraught 2015, Syriza’s leadership sought a political triumph over ideological adversaries in the eurozone by trying to force them to submit to extraordinary demands. They essentially used Greece as a bargaining chip in this ideological battle and declined to use the most obvious and less risky methods available to them to improve the future of Greece.</p>
<p>I would like to explain this not only as someone who understands the technicalities of European Union law, but also as a Greek citizen who is also involved in the Greek election, as a candidate for the new centre-Left party <a href="http://news.yahoo.com/leaders-watch-greek-election-094655669.html">To Potami</a>.</p>
<h2>Varoufakis’s lament</h2>
<p>Many commentators seem to think that Syriza fought for Greece’s right to remain an equal member of the eurozone without excessive obligations – a fight that was lost due to the ideological commitments of European governments (Germany in particular). A closer look, however, shows a different picture. One cannot understand what happened without a good grasp of the legal framework of the eurozone and of the bailout deal. </p>
<p><a href="https://theconversation.com/uk/topics/yanis-varoufakis">Former finance minister Yanis Varoufakis</a>, has given a <a href="http://www.kathimerini.gr/830755/opinion/epikairothta/politikh/ar8ro-toy-g-varoyfakh-giati-htth8hkame">recent summary</a> of events to newspaper Kathimerini, talking about his misgivings over the agreement <a href="http://www.efsf.europa.eu/attachments/Third%20Amendment%20to%20Greek%20MFFA.pdf">reached on February 20</a>. But his summary also confirmed for me that the handling of that agreement was bungled and that its presentation to the Greek public was, to say the least, misleading.</p>
<p>Varoufakis complains that on February 24, the troika – the European Commission, European Central Bank and International Monetary Fund – violated the letter and spirit of the agreement from four days earlier. He says that whereas the earlier agreement was about replacing the old commitments with a new list to be proposed by Greece, they insisted that the deal incorporated all the pre-existing austerity conditions. He regrets that he still signed it. </p>
<p>The truth is that no agreement from the informal Eurogroup – as was signed on February 20 – could amend the bailout conditions imposed on Greece in the previous <a href="http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm">Memorandum of Understanding</a> as Varoufakis suggests. In fact, a glance at the text of the <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/02/150220-eurogroup-statement-greece/">statement</a> makes it clear that this was not the intention at all. It makes existing conditions available for a few more months. It allowed the banks to stay open with ECB support until June 30. </p>
<p>Even if such a joint statement had expressed a desire to replace the bailout conditions, this could only have been the beginning of a long and complex legislative process. It would have to include the EU Commission, Council, and Parliament, but also national governments and parliaments. </p>
<h2>High rhetoric</h2>
<p>How this agreement with the Eurogroup was presented, though, is quite extraordinary. The Greek government behaved as if it had not signed this agreement but an entirely different one. The government <a href="http://www.primeminister.gov.gr/2015/02/27/13379">announced</a> that they had changed the terms of the bailout. They said that austerity and the troika had “ended”. With their usual high rhetoric, they <a href="http://www.syriza.gr/article/id/60458/Omilia-toy-Proedroy-toy-SYRIZA-Aleksh-Tsipra-sthn-Kentrikh-Epitroph21.html#.Vfv3sRFVhBc">declared</a> that there was now an entirely new and different deal and that everything was up for negotiation.</p>
<p>Varoufakis’s recent comments prove that even if they had entertained any illusions at the start, by February 24 at the latest they knew that they had extended the old bailout deal without changing its terms. The government chose not to submit the agreement to parliament, contrary to established practice. </p>
<p>As a result of these announcements, however, the government’s popularity soared. For the first time in years the EU was seen to have been defeated. People believed the official story, which few challenged, that the EU had conceded ground due to Syriza’s robust demands. </p>
<h2>End game</h2>
<p>Varoufakis’s admission that he knew the truth shows something else too, which is even more important. From February onwards, he knew that, legally speaking at least, he could only negotiate under the agreed terms. And he chose not to. That puts into perspective his all-out assault on the eurozone. The subject matter of this tug of war was not Greece’s particular position but the structure of the eurozone as a whole, which Varoufakis wanted and still wants to change. </p>
<p>The Greek government’s overall strategy was to force Germany to allow debt forgiveness, loans from the ECB and no reviews. It expected Germany to give in solely due to a fear that a Greek exit would bring about the breakup of the eurozone. For this gamble to work, Grexit had to become a real possibility, a prospect close enough to scare leaders into panicked retreat. </p>
<p>Of course, the strategy was extremely risky. If anything went wrong, years of misery would most certainly follow for the Greek people. Yet, dizzy perhaps from their startling ascent, Tsipras and Varoufakis set aims so ambitious, so globally significant, that the particular needs of the Greek economy became a sideshow. </p>
<p>So the Greek government went on for the next four months demanding things that were not available under the eurozone legal framework. They required for the most part wholesale changes to European treaties. But such ambitious changes were actually not needed for achieving a less painful deal for Greece. </p>
<p>There were other, more obvious avenues, which the government chose not to take. The bailout is now governed by <a href="http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32013R0473">a new piece</a> of EU law which essentially shifts responsibility to the European Stability Mechanism (ESM). This means that the best possible outcome for Greece would have been to secure, first, an improvement in its financial position and then an end to the adjustment programme under the ESM, followed by post-programme surveillance. Syriza, however, kept ignoring this and other possibilities here and kept pushing for changes that were much harder to satisfy. </p>
<p>Tsipras and Varoufakis effectively persuaded Greeks that a Grexit was highly unlikely, since the EU was already giving ground. The government’s popularity allowed it to engage in ever riskier actions and statements. This, in theory, might have served to make its threats to Germany more credible. It was the rationale, I suspect, of the ill-fated referendum of July 5, which brought about capital controls. Tsipras announced it promising that a strong “No” would strengthen Greece’s hand. </p>
<p>As everyone who knows something about the eurozone understands, these hopes were entirely misconceived. Germany could not have accepted the rewriting of the rulebook. The credibility of monetary union was on the line. So Tsipras’ hopes were immediately dashed on the evening of the referendum, when the eurozone leaders told Tsipras over the phone that no new deal was forthcoming.</p>
<p>In the aftermath, Tsipras’ party has split and his popularity has fallen to such an extent that the result of the coming election <a href="http://www.reuters.com/article/2015/09/18/us-eurozone-greece-poll-idUSKCN0RI0AY20150918">is too close to call</a>. But what is most striking in this story is not this outcome, which was widely predicted. It is the fact that Tsipras never really attempted to negotiate a deal which would improve the bailout terms for his country. Even though Tsipras assured his people that this was what he was doing, such a negotiation never took place. He pursued a different project, namely the change in the rules for the whole of the eurozone. He did not use the most obvious route to help his country. Perhaps history should record this failure as the most important one of all.</p><img src="https://counter.theconversation.com/content/44111/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pavlos Eleftheriadis is affiliated with To Potami, a centre-Left political party in Greece, for which he is an unpaid spokesperson on EU affairs and a parliamentary candidate in Athens for the September 20 election. </span></em></p>An opposition politician and academic argues that new revelations from the Syriza leadership imply that the Prime Minister misled the Greek people.Pavlos Eleftheriadis, Associate Professor of Law & Fellow of Mansfield College, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/358612015-08-27T11:01:43Z2015-08-27T11:01:43ZVaroufakis in conversation with leading academics as Syriza splinters and election beckons in Greece<p>When Yanis Varoufakis was elected to parliament and then <a href="http://www.theguardian.com/business/economics-blog/2015/jan/26/profile-yannis-varoufakis-greece-finance-minister">named as Greek finance minister in January</a>, he embarked on an extraordinary seven months of negotiations with the country’s creditors and its European partners. </p>
<p>On July 6, Greek voters backed his hardline stance in a referendum, with a resounding <a href="https://theconversation.com/greece-votes-no-now-syriza-must-clarify-what-that-really-means-44289">62% voting No to the European Union’s ultimatum</a>. On that night, he resigned, after prime minister Alexis Tsipras, fearful of an ugly exit from the eurozone, decided to go against the popular verdict. Since then, the governing party, Syriza, has splintered and a <a href="https://theconversation.com/why-alexis-tsipras-has-called-a-snap-election-in-greece-46496">snap election has been called</a>. Varoufakis remains a member of parliament and a prominent voice in Greek and European politics.</p>
<p>When asked about Tsipras’s decision to trigger a snap election, inviting the Greek public to issue their judgement on his time in office, Varoufakis said:</p>
<blockquote>
<p>If only that were so! Voters are being asked to endorse Alexis Tsipras’ decision, on the night of their majestic referendum verdict, to overturn it; to turn their courageous No into a capitulation, on the grounds that honouring that verdict would trigger a Grexit. This is not the same as calling on the people to pass judgement on a record of steadfast opposition to a failed economic programme doing untold damage to Greece’s social economy. It is rather a plea to voters to endorse him, and his choice to surrender, as a lesser evil.</p>
</blockquote>
<p>The Conversation asked nine leading academics what their questions were for a man who describes himself as an “accidental economist”. His answers reveal regrets about his own approach during a dramatic 2015, a withering assessment of France’s power in Europe, fears for the future of Syriza, a view that Syriza is now finished, and doubts over how effective Jeremy Corbyn could be as leader of Britain’s Labour party.</p>
<hr>
<p><strong>Anton Muscatelli, University of Glasgow</strong> - <em>Why was Greek prime minister Alexis Tsipras persuaded to accept the EU’s pre-conditions around the third bailout discussions despite a decisive referendum victory for the No campaign; and is this the end of the road for the anti-austerity wing of Syriza in Greece?</em></p>
<p><strong>Varoufakis:</strong> Tsipras’ answer is that he was taken aback by official Europe’s determination to punish Greek voters by putting into action German finance minister Wolfgang Schäuble’s plan to push Greece out of the eurozone, redenominate Greek bank deposits in a currency that was not even ready, and even ban the use of euros in Greece. These threats, independently of whether they were credible or not, did untold damage to the European Union’s image as a community of nations and drove a wedge through the axiom of the eurozone’s indivisibility. </p>
<p>As you probably have heard, on the night of the referendum, I disagreed with Tsipras on his assessment of the credibility of these threats and resigned as finance minister. But even if I was wrong on the issue of the credibility of the troika’s threats, my great fear was, and remains, that our party, Syriza, would be torn apart by the decision to implement another self-defeating austerity program of the type that we were elected to challenge. It is now clear that my fears were justified.</p>
<hr>
<p><strong>Roy Bailey, University of Essex</strong> - <em>Was the surprise referendum of July 5 conceived as a threat point for the ongoing bargaining between Greece and its creditors and has the last year caused you to adjust how you think about Game Theory?</em></p>
<p><strong>Varoufakis:</strong> I shall have to disappoint you Roy {<em>Editor’s note: Roy Bailey taught Varoufakis at Essex and advised on his PhD</em>}. As I wrote <a href="http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?_r=2">in a New York Times op-ed</a>, Game Theory was never relevant. It applies to interactions where motives are exogenous and the point is to work out the optimal bluffing strategies and credible threats, given available information. Our task was different: it was to persuade the “other” side to change their motivation vis-à-vis Greece. </p>
<p>I represented a small, suffering nation in its sixth straight year of deep recession. Bluffing with our people’s fate would be irresponsible. So I did not. Instead, we outlined that which we thought was a reasonable position, consistent with our creditors’ own interests. And then we stood our ground. When the troika pushed us into a corner, presenting me with an ultimatum on June 25 just before closing Greece’s banking system down, we looked at it carefully and concluded that we had neither a mandate to accept it (given that it was economically non-viable) nor to decline it (and clash with official Europe). Instead we decided to do something terribly radical: to put it to the Greek people to decide.</p>
<p>Lastly, on a theoretical point, the “threat point” in your question refers to <a href="http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1994/nash-lecture.pdf">John Nash’s bargaining solution</a> which is based on the axiom of non-conflict between the parties. Tragically, we did not have the luxury to make that assumption.</p>
<hr>
<p><strong>Cristina Flesher Fominaya, University of Aberdeen</strong> - <em>The dealings between Greece and the EU seemed more like a contest between democracy and the banks, than a negotiation between the EU and a member state. Given the outcome, are there any lessons that you would take from this for other European parties resisting the imperatives of austerity politics?</em></p>
<p><strong>Varoufakis:</strong> Allow me to phrase this differently. It was a contest between the right of creditors to govern a debtor nation and the democratic right of the said nation’s citizens to be self-governed. You are quite right that there was never a negotiation between the EU and Greece as a member state of the EU. We were negotiating with the troika of lenders, the International Monetary Fund, the European Central Bank and a wholly weakened European Commission in the context of an informal grouping, the Eurogroup, lacking specific rules, without minutes of the proceedings, and completely under the thumb of one finance minister and the troika of lenders. </p>
<p>Moreover, the troika was terribly fragmented, with many contradictory agendas in play, the result being that the “terms of surrender” they imposed upon us were, to say the least, curious: a deal imposed by creditors determined to attach conditions which guarantee that we, the debtor, cannot repay them. So, the main lesson to be learned from the last few months is that European politics is not even about austerity. Or that, as <a href="http://yanisvaroufakis.eu/2015/03/15/presenting-an-agenda-for-europe-at-ambrosetti-lake-como-14th-march-2015/">Nicholas Kaldor wrote in The New Statesman</a> in 1971, any attempt to construct a monetary union before a political union ends up with a terrible monetary system that makes political union much, much harder. Austerity and a hideous democratic deficit are mere symptoms.</p>
<hr>
<p><strong>Panicos Demetriades, University of Leicester</strong> - <em>Did you ever think that your message was being diluted or becoming noisy, or even incoherent, by giving so many interviews?</em></p>
<p><strong>Varoufakis:</strong> Yes. I have regretted several interviews, especially when the journalists involved took liberties that I had not anticipated. But let me also add that the “noise” would have prevailed even if I granted far fewer interviews. Indeed the media game was fixed against our government, and me personally, in the most unexpected and repulsive way. Wholly moderate and technically sophisticated proposals were ignored while the media concentrated on trivia and distortions. Giving interviews where I would, to some extent, control the content was my only outlet. Faced with an intentionally “noisy” media agenda that bordered on character assassination, I erred on the side of over-exposure. </p>
<hr>
<p><strong>Simon Wren-Lewis, University of Oxford</strong> - <em>Might it have been possible for a forceful France to have provided an effective counterweight to Germany in the Eurogroup, or did Germany always have a majority on its side?</em></p>
<p><strong>Varoufakis:</strong> The French government feels that it has a weak hand. Its <a href="http://www.reuters.com/article/2015/03/26/us-france-economy-idUSKBN0MM0NN20150326">deficit</a> is persistently within the territory of the so-called <a href="http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure">excessive deficit procedure</a> of the European Commission, which puts Pierre Moscovici, the European commissioner for economic and financial affairs, and France’s previous finance minister, in the difficult position of having to act tough on Paris under the watchful eye of Wolfgang Schäuble, the German finance minister. </p>
<p>It is also true, as you say, that the Eurogroup is completely “stitched up” by Schäuble. Nevertheless, France had an opportunity to use the Greek crisis in order to change the rules of a game that France will never win. The French government has, thus, missed a major opportunity to render itself sustainable within the single currency. The result, I fear, is that Paris will soon be facing a harsher regime, possibly a situation where the president of the Eurogroup is vested with draconian veto powers over the French government’s national budget. How long, once this happens, can the European Union survive the resurgence of nasty nationalism in places like France?</p>
<hr>
<p><strong>Kamal Munir, University of Cambridge</strong> – <em>You often implied that what went on in your meetings with the troika (the IMF, ECB and European Commission) was economics only on the surface. Deep down, it was a political game being played. Don’t you think we are doing a disservice to our students by teaching them a brand of economics that is so clearly detached from this reality?</em></p>
<p><strong>Varoufakis:</strong> If only some economics were to surface in our meetings with the troika, I would be happy! None did.</p>
<p>Even when economic variables were discussed, there was never any economic analysis. The discussions were exhausted at the level of rules and agreed targets. I found myself talking at cross-purposes with my interlocutors. They would say things like: “The rules on the primary surplus specify that yours should be at least 3.5% of GDP in the medium term.” I would try to have an economic discussion suggesting that this rule ought to be amended because, for example, the 3.5% primary target for 2018 would depress growth today, boost the debt-to-GDP ratio immediately and make it impossible to achieve the said target by 2018. </p>
<p>Such basic economic arguments were treated like insults. Once I was accused of “lecturing” them on macroeconomics. On your pedagogical question: while it is true that we teach students a brand of economics that is designed to be blind to really-existing capitalism, the fact remains that no type of sophisticated economic thinking, not even neoclassical economics, can reach the parts of the Eurogroup which make momentous decisions behind closed doors.</p>
<hr>
<p><strong>Mariana Mazzucato, University of Sussex</strong> – <em>How has the crisis in Greece (its cause and its effects) revealed failings of neoclassical economic theory at both the micro and the macro level?</em></p>
<p><strong>Varoufakis:</strong> The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.</p>
<p>It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see <a href="http://www.cer.org.uk/insights/more-investment-germany%E2%80%99s-sake">German savings that permanently outweigh German investment</a> while <a href="https://theconversation.com/greece-and-germany-have-more-in-common-than-you-might-think-41735">Greek investment outweighs savings</a> during the “good times” (before 2008) but collapses to zero during the crisis. </p>
<p>Moving to the micro level, the observation that, in the case of Greece, real <a href="http://www.reuters.com/article/2013/10/22/us-greece-incomes-idUSBRE99L0I420131022">wages fell by 40%</a> but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.</p>
<hr>
<p><strong>Tim Bale, Queen Mary University of London</strong> – <em>Do you see any similarities between yourself and Jeremy Corbyn, who looks like he might win the (UK) Labour leadership, and do you think a left-wing populist party is capable of winning an election under a first-past-the-post system?</em></p>
<p><strong>Varoufakis:</strong> The similarity that I feel at liberty to mention is that Corbyn and I, probably, coincided at many demonstrations against the Tory government while I lived in Britain in the 1970s and 1980s, and share many views regarding the calamity that befell working Britons as power shifted from manufacturing to finance. However, all other comparisons must be kept in check. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Demo partners? Jeremy Corbyn.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/garryknight/15024926027/in/photolist-oTGF3K-oFqoSv-ou7Aqw-8ZatUS-oBHKNz-wNHZ7B-wNATdW-HihJt-rRyD2L-k6WpFb-oFoHoE-wNAXkq-wNzJCJ-w9buVb-vSJAQQ-x6KuKx-x6JW2B-wNHnvX-w9bUyJ-3j3uR1-wx8Sku-vST2QH-9SZa9Q-9SZ8Wh-9SWj8a-9SWiYz-9SZ97G-9SWk3v-9SZ9QU-9SWjgT-9SZ9Z7-9SZ9FW-9SWjQ6-9SWkKp-wP2Qf5-wxgfG8-wMqMf7-wP2cq3-wPKskc-wMqKpd-wxg4ui-wMqJhy-wx8NvL-wMrez1-vSSWYD-vSTSZV-vSJrw9-wPKwJn-wx8RKE-wPL5vi">Garry Knight</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Syriza was a radical party of the Left that scored a little more than <a href="http://www.ibtimes.com/greece-elections-syriza-gears-win-grexit-expectations-are-low-1793502">4% of the vote in 2009</a>. Our incredible rise was due to the collapse of the political “centre” caused by popular discontent at a Great Depression due to a single currency that was never designed to sustain a global crisis, and by the denial of the powers-that-be that this was so. </p>
<p>The much greater flexibility that the Bank of England afforded to Gordon Brown’s and David Cameron’s British governments prevented the type of socio-economic implosion that led Syriza to power and, in this sense, a similarly buoyant radical left party is most unlikely in Britain. Indeed, the Labour Party’s own history, and internal dynamic, will, I am sure, constrain a victorious Jeremy Corbyn in a manner alien to Syriza. </p>
<p>Turning to the first-past-the-post system, had it applied here in Greece, it would have given our party a crushing majority in parliament. It is, therefore, untrue that Labour’s electoral failures are due to this system. </p>
<p>Lastly, allow me to urge caution with the word “populist”. Syriza did not put to Greek voters a populist agenda. “Populists” try to be all things to all people. Our promised benefits extended only to those earning less than £500 per month. If it wants to be popular, Labour cannot afford to be populist either.</p>
<hr>
<p><strong>Mark Taylor, University of Warwick</strong> - <em>Would you agree that Greece does not fulfil the criteria for successful membership of a currency union with the rest of Europe? Wouldn’t it be better if they left now rather than simply papering over the cracks and waiting for another Greek economic crisis to occur in a few years’ time?</em></p>
<p><strong>Varoufakis:</strong> The eurozone’s design was such that even France and Italy could not thrive within it. Under the current institutional design only a currency union east of the Rhine and north of the Alps would be sustainable. Alas, it would constitute a union useless to Germany, as it would fail to protect it from constant revaluation in response to its trade surpluses. </p>
<p>Now, if by “criteria” you meant <a href="http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm">the Maastricht limits</a>, it is of course clear that Greece did not fulfil them. But then again nor did Italy or Belgium. Conversely, Spain and Ireland did meet the criteria and, indeed, by 2007 the Madrid and Dublin governments were registering deficit, debt and inflation numbers that, according to the official criteria, were better than Germany’s. And yet when the crisis hit, Spain and Ireland sunk into the mire. In short, the eurozone was badly designed for everyone. Not just for Greece. </p>
<p>So should we cut our losses and get out? To answer properly we need to grasp the difference between saying that Greece, and other countries, should not have entered the eurozone, and saying now that we should now exit. Put technically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.</p><img src="https://counter.theconversation.com/content/35861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanis Varoufakis served as Greece’s Finance Minister (January to July 2015) and remains a Member of the Hellenic Parliament.</span></em></p><p class="fine-print"><em><span>Cristina Flesher Fominaya is currently Senior Marie Curie Fellow at the Natonal University Ireland, Maynooth. Her current research project "Contentious Politics in an Age of Austerity" is funded by a Marie Sklodowska-Curie Intra-European Fellowship.</span></em></p><p class="fine-print"><em><span>Panicos O. Demetriades has received funding from the ESRC to carry out research projects and offers consultancy services through Gerson Lehrman Group.</span></em></p><p class="fine-print"><em><span>Anton Muscatelli, Kamal A Munir, Mariana Mazzucato, Mark Taylor, Roy Bailey, Simon Wren-Lewis, and Tim Bale do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greece’s ‘accidental economist’ speaks to the UK’s leading minds on Syriza, the troika, and whether he’s just a little over-exposed.Yanis Varoufakis, Professor of Economics, University of AthensLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443522015-07-07T02:12:47Z2015-07-07T02:12:47ZVaroufakis exit is not the game changer the EU needs<p>Many observers of the Greek debt crisis believed that after the referendum matters should return to the negotiating table in Brussels for a new round of painful arm-wrestling between Greece and the troika. Before the referendum, it was widely held that a yes vote would shift the balance towards the troika, while a no vote would increase Greece’s leverage in the negotiations. </p>
<p>The underlying assumption has been that it is perfectly rational for the troika and Greece to return to the negotiating table after the referendum. But within hours of the humiliating referendum outcome, the troika regrouped, stood up and delivered a <a href="http://yanisvaroufakis.eu/2015/07/06/minister-no-more/">new blow</a>, resulting in the resignation of Greek Finance Minister Yanis Varoufakis.</p>
<p>It is tempting to believe the departure of Varoufakis is a paradigm changer. In reality it is a non sequitur. The eurozone is in real crisis and changing the finance minister of Greece is akin to shuffling the deckchairs on the Titanic. </p>
<p>The minister’s fate was not a shock to everyone - he failed to create <a href="https://theconversation.com/the-next-card-yanis-varoufakis-will-play-37230">sufficient ambiguity</a>. Neither Varoufakis nor the troika has ever mastered the art of tightrope walking, so the negotiations between Greece and its creditors became fraught with deeper and deeper challenges as time wore on. </p>
<p>Just before the referendum took place, the IMF had started <a>recanting its position</a> on Greece, acknowledging Greece would need far more support, along with debt relief, to turn its economy around. This makes the negotiations in Brussels a wild goose chase and both parties know of their <a href="http://www.theguardian.com/business/live/2015/jun/24/greek-crisis-eurogroup-meeting-tsipras-backlash-live">futility</a>. Would it be fair to ask whether the negotiations were a hoax?</p>
<h2>Rebuilding the flawed EU</h2>
<p>It is an open secret today that the IMF’s policy stance on Greece was a victim of Dominique Strauss-Kahn. In his usual style, he brushed aside professional advice from his economists and objections from many developed nations and put the rock of austerity around the neck of Greece, leading to economic stagnation.</p>
<p>The troika sought to make Greece compete in an international swimming championship when Greece couldn’t even float with that rock tied to its neck.</p>
<p>Deep down, the European Union has fundamental flaws. Any attempt to put a fix on the Greek crisis without rectifying these fundamental flaws will inevitably fail regardless of who is the finance minister of Greece or Germany. </p>
<p>The EU is nothing but a dualistic system with a north-south divide in productivity: most of the southern economies can’t compete with the northern ones, which inevitably leads to trade imbalances between them. Since the entry of Greece into the EU, the north has maintained a trade surplus while the south has suffered from a trade deficit. </p>
<p>The desire of southern governments to create investment booms for increasing productivity led to their indebtedness, with little impacts on their relative productivity vis-à-vis northern EU nations, but with a rising gap in their cost of production due to increasing wages. This begs a question of how the EU can overcome such long-run problems.</p>
<h2>More lessons from Germany</h2>
<p>One possible model can be found in Germany’s constitution.</p>
<p>The German Basic Law (Germany’s constitution) is founded on the philosophy of ensuring each tier of government has adequate access to financial resources. It is graphic about the allocation of revenues from the major taxes among the Federation, Länder (German states) and municipal governments. All three tiers of government share the personal income tax while the Federation and the Länder share corporate taxes and the proceeds from the German value-added tax (VAT). Beyond this agreement, even if there is no constitutional mandate, a business tax is also shared among these three tiers of government. This fiscal equalisation ensures that the poorer Länder are equalised to at least 95% of the average revenues of all Länder. </p>
<p>In the absence of fiscal equalisation and the divergence in productivity, the current Greek negotiations will fail to overcome economic dualism in the EU. </p>
<p>The EU will move from one crisis to another if it relies solely on negotiations of debts without real reforms in the fiscal arena.</p><img src="https://counter.theconversation.com/content/44352/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Partha Gangopadhyay does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ongoing negotiations between Greece and the troika are likely to prove futile - what’s needed is a complete rethink of EU’s dualistic system.Partha Gangopadhyay, Associate Professor of Economics, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443242015-07-06T14:26:51Z2015-07-06T14:26:51ZLessons from Greece as controversial finance minister exits stage left<p>Greece’s economy is in ruins. It is hard to imagine how things could have gone worse. Banks closed, no liquidity, very high unemployment, businesses closing down or fleeing the country, and the brain drain is accelerating.</p>
<p>And now the Greek people have voted No in a referendum that some cast as being about whether they would remain in the eurozone – though many were <a href="https://theconversation.com/greece-votes-no-now-syriza-must-clarify-what-that-really-means-44289">unclear</a> about what exactly the vote meant. What it certainly means is that the Greek people are deeply wounded by the prolonged recession of the last six years. </p>
<p>As Greek Prime Minister Alexis Tsipras heads back to the negotiating table in hopes of securing a new deal to save his country, he will go without his controversial finance minister, Yanis Varoufakis, who <a href="http://www.theguardian.com/world/2015/jul/06/greek-finance-minister-yanis-varoufakis-resigns-despite-referendum-no-vote">resigned</a> a day after the vote. According to Varoufakis, Tsipras asked him to resign in order to help with the negotiations.</p>
<p>One reason we’re where we are today, so close to a “Grexit,” is that journalists – Greek and foreign – failed to carefully scrutinize Varoufakis’s strategy to win better terms from Germany – one that didn’t pan out. Let’s hope they look much more closely at his replacement.</p>
<h2>Path of destruction</h2>
<p>Tsipras, Varoufakis and their left wing Syriza party were elected to office back in January because of how much the Greek economy had suffered. Between 2009 and 2014, a tremendous amount of value was <a href="http://qz.com/248821/greeces-collapse-is-officially-worse-than-the-us-great-depression/">destroyed</a>, both because of the failure of Greek governments to implement reforms and because of the austerity measures imposed by creditors. The pace of value destruction only accelerated in the first six months of 2015. </p>
<p>Consider this: just in the first quarter of 2015, the Hellenic Financial Stability Fund (the fund established with loans from eurozone governments and the European Financial Stability Facility to finance Greek bank recapitalization) <a href="http://www.hfsf.gr/files/HFSF_Interim_January_March_2015_en.pdf">lost €5 billion</a>. </p>
<p>This loss and the postponement of cash payments from the Greek government to its suppliers isn’t being accounted for in its budget. Doing so would turn the 4% primary budget surplus that was reported for the first quarter into a 13% deficit. The primary surplus is the sum of spending and income, excluding interest payments.</p>
<h2>From expert to pariah</h2>
<p>When Varoufakis emerged on the public scene, he was quickly <a href="http://business.financialpost.com/news/economy/greeces-superstar-finance-minister-yanis-varoufakis-tests-eus-ways-of-winning-friends-and-influencing-them">baptized</a> by the media as an expert and world-class economist. </p>
<p>That created a figure of authority, a person that many Greeks deeply believed. In the last couple months, however, he has been under attack, accused of destroying the country’s finances. </p>
<p>The same people who now criticize him never questioned the basic premise of Varoufakis’ negotiating strategy: that Europe would blink first because of the risk of contagion. His assumption was that the threat of a Grexit would have devastating consequences to the eurozone. </p>
<p>Back in February, I <a href="https://www.linkedin.com/pulse/greece-threat-eurozone-george-serafeim?trk=mp-reader-card">said</a> the opposite: do not count on this because we are not in 2012 anymore. The eurozone built a concrete fence around the Greek economy so that if it blows up, the consequences for other countries would be minimized – though it still would send Greece back to pre-euro economic development levels. </p>
<p>Whether this will now prove to be true is irrelevant. What matters is that both European politicians and the markets believe it. All Greek threats during negotiations were dismissed.</p>
<h2>Lack of scrutiny</h2>
<p>Unfortunately, before Varoufakis was given the license to implement his strategy, he was never hard-pressed to present evidence of his hypothesis. </p>
<p>What data did he have that suggested that European financial institutions were exposed to the risk of a Grexit? Would big foreign multinational companies be forced to fire a large number of people as a result of the Greek market collapsing? Did the prices of government bonds of other countries move in the same direction as the prices of Greek government bonds in 2014 – in other words, is there evidence of a close connection between the fate of the Greek economy and that of other countries?</p>
<p>The role of a finance minister is incredibly important in a country’s economy. </p>
<p>Given the importance of attracting investments, the finance minister needs to inspire confidence and build trust. The only way to do this is through consistency, specificity and clarity in decision-making and public statements. </p>
<p>A finance minister needs to have a clear plan and to be able to support his or her rationale with evidence. </p>
<p>I do hope that Greek – and other – journalists will scrutinize the country’s future finance ministers to present evidence that justify the policies they choose. They have a very important role to play, if Greece is ever to recover.</p><img src="https://counter.theconversation.com/content/44324/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Serafeim is affiliated with Harvard Business School, KKS Advisors, the High Meadows Institute and the Global Initiative for Sustainability Ratings.</span></em></p>Greek Finance Minister Yanis Varoufakis, who led a failed strategy to change the terms of Greece’s bailout, resigned Monday.George Serafeim, Jakurski Family Associate Professor of Business Administration, Harvard UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443172015-07-06T10:14:49Z2015-07-06T10:14:49ZVictory for politics of defiance in Greece means the real crisis starts now<p>Now that the Greek referendum has produced a <a href="http://news.sky.com/story/1513901/greece-referendum-no-vote-what-does-it-mean">decisive No vote</a>, never mind what happened before. The real crisis starts now. </p>
<p>It has to be recognised that the Greek people faced a difficult choice. The referendum itself was a political gambit by the Syriza government to seek to split the eurozone governments and obtain a better deal. The politics of defiance has won. It was a major gamble, so will it pay off? </p>
<p>There will be some EU leaders, particularly in France and Italy, who will urge a return to the negotiating table. But the odds which the Greek government now faces are stiff. One political commentator wryly told me in recent days that Syriza has achieved what few others managed: to unite the eurozone governments against it, even those most critical of austerity policies. In my view there is now an 80% probability of Grexit. </p>
<h2>The Greek reality</h2>
<p>The IMF’s debt sustainability report, which <a href="https://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf">was published</a> on June 26 just days before the vote, shows how dire Greece’s fiscal predicament is. Just a year before, the fund projected the country’s debt/GDP ratio falling from 175% in 2013 to around 128% in 2020. But the poor growth performance and poorer primary fiscal balances have worsened the outlook such that the ratio is now expected to be over 150% by 2020. </p>
<p>Worse is still to come: the report does not yet reflect the negative impact of the current banking closure and capital controls, which will have severely affected economic activity, and numerous commentators have said that the IMF’s growth forecasts for the country are too optimistic.</p>
<p>Although one can partly blame Syriza’s intransigence for the latest economic setbacks, the result of the referendum should be a wake-up call to the eurozone economies that fiscal austerity alone cannot be a solution. Greece’s <a href="http://www.tradingeconomics.com/greece/gdp">GDP decline</a> of more than 27% between 2008 and the first quarter of 2015 is one of the worse peacetime economic declines in history. </p>
<h2>Entrenched warfare</h2>
<p>Following the No vote, the rhetoric on both sides will be turned up another notch, having already sharpened in recent weeks. Northern-European critics <a href="http://www.cesifo-group.de/cesifo/newsletter/0515/Original_Sinn_May_2015.html">point out</a> that none of the reforms to pensions or to the economy, such as privatisations, which were agreed in 2011 have been carried out. </p>
<p>There were <a href="https://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf">supposed to be</a> €23bn (£16bn) of proceeds from privatisation over the 2014–22 period, and further ones which the Greek government promised but which have since been taken off the table. The IMF now notes that there have been privatisations of €3bn in the past five years and forecasts proceeds of only €500m a year over the next few. </p>
<p>In contrast, critics of the <a href="http://www.bbc.co.uk/news/business-15149626">troika</a>’s approach <a href="http://www.project-syndicate.org/commentary/greece-referendum-troika-eurozone-by-joseph-e--stiglitz-2015-06">argue that</a> Greece’s economy has lagged behind because of a basic lack of domestic demand, and that aiming to run a 3%-4% primary surplus in the national finances is incompatible with any sort of economic recovery. </p>
<p>This polarised debate disguises that the better path probably lies in the middle: Greece does need to improve the supply side of its economy by investing in new technologies and making its existing sectors more competitive. But in the meantime, demand needs to be sustained and you need more than three to four years to radically restructure an economy. In simple terms Greece needs another bailout (probably about €50bn), this time with a major debt restructuring (about €80bn, maybe more) to ensure that a new medium-term economic plan can be adopted which has a chance of working.</p>
<p>That’s what the bargaining should be about, and following the referendum the Tspiras government has a strong mandate. But this will require flexibility so far unseen among the eurozone governments – many have already said publicly that a No would lead to a Greek exit from the euro. Negotiating a new bailout will also take time. </p>
<h2>The liquidity threat</h2>
<p>But in the short run the main binding constraint is the banking shutdown. It is rumoured that one Greek bank is almost running out of cash, <a href="http://www.telegraph.co.uk/finance/economics/11715198/greece-crisis-live-no-yes-referendum-polls.html">and that</a> the whole banking sector has no more than €500m-€1bn left to dispense: about three days’ worth of cash. Without political cover from the eurozone governments, the European Central Bank (ECB) cannot reverse its move on June 28 to cap the Emergency Liquidity Assistance programme, which led to the closure of Greece’s banks the following day. </p>
<p>Having already received €89bn in assistance to keep functioning, the banks can’t resume business unless the cap is removed. Without additional ECB support, there would quickly be serious dislocation in the economy as businesses and government cannot pay salaries, and key imports like food and medicines cannot be guaranteed. Many businesses would cease to operate. So if the eurozone does not restart negotiations then Grexit could follow, de facto if not de jure, as the banks run out of cash. </p>
<p>If the eurozone shuts out Greece from ECB assistance, the Greek government would then be forced to issue promissory notes or IOUs: in essence the precursor of a new Greek currency, to which the Greek Central Bank and the Greek banks would need to be parties. Indeed, outgoing finance minister Yanis Varoufakis <a href="http://www.telegraph.co.uk/finance/economics/11719688/Defiant-Greeks-reject-EU-demands-as-Syriza-readies-IOU-currency.html">has already indicated</a> that this is a possibility. In theory this exit from the euro could be reversed if an agreement were reached with the eurozone.</p>
<p>But a dual currency limbo cannot last long. Very quickly it would make sense to convert all bank accounts, prices and contracts to the new currency. Because it would take time to issue new drachma notes, euro notes would continue to circulate alongside IOUs. But people would seek to hide them in the knowledge that the new drachma would quickly devalue, probably by about 50%. It is also likely that the euro would eventually stop being legal tender and tight capital controls would operate, with a forcible conversion of euro notes to new drachma notes. </p>
<p>For the creditors, Grexit means Greece could walk away from its debt, which is mostly held by governments rather than European banks. This will have a negative fiscal impact on large eurozone countries like Germany, France, Italy and Spain. But European banks have built up capital reserves in the last five years and should be able to withstand the shock of the sovereign bonds of large eurozone countries that they hold on their balance sheets plunging in value as a result. </p>
<p>For the eurozone, the key will be to prevent a contagion through increasing debt costs to other weaker members such as Spain, Portugal, Ireland and Italy. The ECB will need to use whatever it takes to defend these countries, including its <a href="http://lexicon.ft.com/Term?term=outright-monetary-transactions-OMT">Outright Monetary Transactions programme</a>, under which it can buy their sovereign bonds.</p>
<p>For Greece, debt relief would follow an exit from the eurozone. But there are risks, not least that it would have violated its adherence to EU treaties by exiting the euro. So an exit from the EU, though seemingly implausible, cannot be excluded. </p>
<p>And in spite of having a currency with a much lower value following a Grexit, there might be little benefit to net exports for Greece. This is because the Greek economy <a href="http://www.ft.com/cms/s/1bf65f00-1f29-11e5-ab0f-6bb9974f25d0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F1bf65f00-1f29-11e5-ab0f-6bb9974f25d0.html%2523axzz3f2HiHl5L%3Fsiteedition%3Duk&siteedition=uk&_i_referer=">is quite closed</a>, with net exports less responsive than might be expected to a devaluation. Greece would also need to maintain a fiscal surplus with no short-run external finance sources. So for Syriza this risks being a pyrrhic victory. For the eurozone and the EU, meanwhile, this is their biggest ever challenge.</p><img src="https://counter.theconversation.com/content/44317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anton Muscatelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Greek rejection of the bailout means it’s time to brace ourselves: Grexit is now an 80% probability.Anton Muscatelli, Principal and Vice Chancellor, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442592015-07-05T08:59:21Z2015-07-05T08:59:21ZIf you think the eurozone will be safe from Grexit contagion, think again<figure><img src="https://images.theconversation.com/files/87352/original/image-20150703-20493-t2b4sa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Grexit puts everyone at risk</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&search_tracking_id=078hje0CELX3fTEgCY0uDQ&searchterm=greek%20crisis&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=292175045">Martin Capek</a></span></figcaption></figure><p>For Greece’s government, the July 5 referendum that <a href="http://news.sky.com/story/1513740/greece-no-campaigners-celebrate-victory">has just</a> rejected the EU’s bailout package was one step in a long negotiation process. Its ultimate objective is to get Greece’s creditors to agree a <a href="http://uk.businessinsider.com/greece-2-year-bailout-demands-and-loan-application-2015-6">bailout package</a> that provides partial relief from debt repayments, together with a substantial debt write-down. </p>
<p>For the creditors, on the other hand, it was a straightforward in/out referendum which will determine Greece’s continued membership in the eurozone and even perhaps the EU. If Greece voted Yes, these creditors were effectively demanding a <a href="http://www.nytimes.com/2015/06/30/world/europe/greek-premiers-referendum-call-tests-his-power-and-conviction.html?_r=0">change of government</a>.</p>
<p>Now those creditors have to be content with the <a href="http://money.cnn.com/2015/07/06/news/economy/greece-yanis-varoufakis-resigns/">resignation</a> of finance minister Yanis Varoufakis. The rest of the government remains.</p>
<p>Given the pivotal nature of the referendum, the brinkmanship on display was both striking and seemingly foolhardy – possibly borne of a disagreement about what will happen if an agreement can’t be reached. It further complicated what is already a high-stakes and seemingly endless negotiation, which now has to contend with a Greek No victory as well. </p>
<h2>Making sense of Greece</h2>
<p>After it <a href="will%20happen%20if%20negotiations%20break%20down,%20and%20therefore%20what%20the%20true%20worth%20of%20the%20%22outside%20option%22%20really%20is.">won the</a> last Greek general election in January, Syriza of course <a href="http://www.todayszaman.com/anasayfa_syriza-wins-greek-election-promises-austerity-is-over_370820.html">publicly committed</a> to reject any bailout package involving further austerity – though it has since <a href="http://www.bloomberg.com/news/articles/2015-07-02/defiant-varoufakis-says-he-ll-quit-if-greeks-endorse-austerity">shown willing</a> to compromise this ideal. </p>
<p>The Greek argument is that austerity is self-defeating, and without a substantial debt restructuring, the prospect of further harm to the country in both the short-run and the medium term outweighs any potential gains from continued eurozone membership. The <a href="http://www.theguardian.com/business/2015/jul/02/imf-greece-needs-extra-50bn-eurosanalysis">IMF’s intervention</a> on July 2 seemingly supports this view, proposing relief from debt repayments and a substantial debt write-down in return for a credible plan for economic reforms. Yet while Greek prime minister Alexis Tsipras <a href="http://www.theguardian.com/business/2015/jul/02/imf-greece-needs-extra-50bn-euros">welcomed</a> this intervention, not all the economic reforms the IMF has in mind might be palatable to Syriza. </p>
<p>The contrary view, of course, is that the current Syriza government in Greece is a recalcitrant debtor with no intention of either paying back its debts or implementing a reform package that stimulates private-sector economic activity. The Greek government has steered clear of conflating a No vote and a strategic default, though, clearly wording the referendum to avoid this interpretation. It seeks a decision from the Greek people on the latest bailout proposal and not euro membership. And the proposal <a href="http://g8fip1kplyr33r3krz5b97d1.wpengine.netdna-cdn.com/wp-content/uploads/2015/06/ilovepdf_merged-2.pdf">it tabled</a> to the <a href="http://www.esm.europa.eu">European Stability Mechanism</a> and <a href="http://www.consilium.europa.eu/en/council-eu/eurogroup/">Eurogroup</a> on June 29 for a new third bailout was an attempt to distance itself from the vitiated wrangling that has characterised the failed talks so far.</p>
<h2>Eurozone brinkmanship</h2>
<p>Less has been written about the brinkmanship on the part of the eurozone creditors. It signals a belief that the impact of Greece leaving the euro could be contained to its borders and not spread to other eurozone countries labouring under enormous debts. This betrays a false sense of control over the unintended consequences and deep long-term uncertainty that a Grexit would cause. </p>
<p>A different view is that a Grexit would push the eurozone project to the brink. The eurozone constitutes an irrevocable commitment to a monetary union, essentially a fixed-exchange-rate arrangement backed by a central bank and some form of banking union. As we learned from the <a href="https://history.state.gov/milestones/1969-1976/nixon-shock">collapse of</a> the Bretton-Woods system in the 1970s, fixed-exchange-rate regimes between structurally dissimilar economies eventually break down. A common central bank and a banking union might mitigate some of the risks, but without some arrangement to pool the fiscal policies of the different countries involved, it is prone to collapse once the irrevocable commitment to sustain the monetary union is in doubt. Allowing Greece to leave would put the eurozone in that category. </p>
<p>The market would consequently demand a risk premium in relation to the assets of other struggling countries in the zone. It would want to see a pan-European framework of laws in place to mitigate the risks of another country leaving, which doesn’t exist at present. The <a href="http://europa.eu/rapid/press-release_MEMO-13-1140_en.htm?locale=en">EU banking resolution framework</a> is still nascent and untested, and Grexit could expose flaws at a particularly turbulent time when its inevitable bank insolvencies would have to be handled in an orderly fashion. </p>
<p>Equally uncertain are the <a href="http://www.inhouselawyer.co.uk/index.php/contract/7202-choice-of-law-when-none-is-chosen-the-rome-i-regulation">rules governing</a> what happens to commercial contracts between Greek parties and those from elsewhere in the EU, and whether they would be redenominated from euros into new drachma (potentially causing catastrophic losses for non-Greeks if and when that drachma plummeted). This would make the outcomes from any litigation particularly uncertain, which would create further market uncertainty and instability. Indeed regardless of the outcome on Sunday, there is <a href="http://www.allenovery.com/archive/Documents/Legacy/65610.pdf">no evidence</a> that the uncertainty will be diminished in this respect. </p>
<p>Further adding to the uncertainty is the fact that the creditors have <a href="http://www.theguardian.com/business/2015/jul/01/greece-crisis-berlin-blasts-tsipras-scapegoats-germany">not yet said</a> whether the bailout negotiations would continue in the event of a Grexit; and the partisan role of the European Central Bank in <a href="http://www.theguardian.com/business/live/2015/jun/28/greek-crisis-ecb-emergency-liquidity-referendum-bailout-live">denying the</a> Greek banks the emergency liquidity to which they are entitled as members of the euro. </p>
<p>There was an unequivocal monetary-policy case for continuing the funding until after the referendum (it stopped on Sunday June 28), as well as renegotiating the austerity programme on which the bailouts depend. The European Central Bank <a href="https://www.ecb.europa.eu/press/pr/date/2015/html/pr150628.en.html">provided no</a> monetary rationale for its decision – yet the European Court of Justice <a href="http://curia.europa.eu/jcms/upload/docs/application/pdf/2015-01/cp150002en.pdf">has ruled</a> that the bank’s mandate requires it to ensure the channels for monetary policy remain unblocked. The bank’s evident sensitivity to political headwinds is a problem for the future stability of the eurozone. </p>
<p>The ways in which these scenarios do or don’t play out after the referendum are moot to some extent. Despite the No vote in Greece, a solution will be found in the short term. But to make a difference in the longer term, there will have to be further and deeper economic convergence funded by a 21st-century version of the <a href="http://marshallfoundation.org/marshall/the-marshall-plan/">Marshall Plan</a> for the eurozone’s “south”, together with a new phase of political integration. Since Europe’s citizens want to bring the continent closer together, there is no other option.</p><img src="https://counter.theconversation.com/content/44259/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sayantan receives funding from ESRC</span></em></p><p class="fine-print"><em><span>Dania Thomas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>European leaders have consistently claimed that their anti-contagion measures would protect the rest of the eurozone from a Greek exit. This looks like pure propaganda.Sayantan Ghosal, Professor of Economics, University of GlasgowDania Thomas, Lecturer in Business Law, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441042015-07-03T05:28:26Z2015-07-03T05:28:26ZGreece, honour and the ancient ties of wergeld<p>On the surface, it seems the <a href="https://theconversation.com/uk/topics/greece">Greek crisis</a> is all about money. The Greek government has defaulted on a €1.6bn loan repayment to the IMF and is seeking a new bailout programme. Meanwhile, the Greek people are to take part in a referendum that is being billed as a choice between the euro and the drachma.</p>
<p>In fact this crisis is not about money. Greece’s creditors are well aware that Greece cannot repay or even service its debt. They are happy to keep finding ways to refinance it, so long as Greece agrees to punitive austerity policies. They aim for punishment, not repayment. They care about honour and vengeance, not money. </p>
<p>Modern Europe is witnessing an enactment of an ancient law known as <a href="http://www.britannica.com/topic/wergild">wergeld</a>. Greece is expected to continue paying, not until its financial debt has been cleared, but rather until its creditors think it has suffered enough.</p>
<h2>The endless debt</h2>
<p>When a person or a firm faces bankruptcy, their debts can be written down to their ability to pay. A person’s total ability to pay can be estimated on the basis of expected lifetime earnings. Firms have indefinite lifespans, but at least their rate of repayment can be estimated on the basis of their expected profits.</p>
<p>Sovereign debt is completely different. A sovereign, <a href="http://oregonstate.edu/instruct/phl302/texts/hobbes/leviathan-d.html">as Hobbes said</a>, is immortal in the intention of them that make it. And in principle it can set its own level of income by choosing how much to tax its citizens and how much to spend on them. There must be a limit to what sovereigns can extract from their citizens, but who knows where it is? A sovereign’s ability to pay is an unknown rate of income multiplied over an infinite lifespan. This is why Greece can, in principle, stay in the condition of a debtor forever.</p>
<p>Nor is there any real limitation on the creditors’ side. It is true that some creditor or other must keep lending Greece money to service its debt. But once the European Central Bank got involved the amount of potentially available credit became infinite.</p>
<p>So far the austerity policies imposed on Greece by its creditors have made it less, not more, able to pay. From 2006 the debt-to-GDP ratio has risen from <a href="http://www.tradingeconomics.com/greece/government-debt-to-gdp">100% to nearly 180%</a>. But what does it matter? The sovereign debtor has an infinite lifespan in which to recover the loss.</p>
<p>There is 60% youth unemployment now, but three generations in the future people might be working again. Greeks may be dying early due to malnutrition and curable disease, but others are being born who can take over the work of repayment. The luxury of time is all the luxury the creditor needs.</p>
<h2>Paying wergeld</h2>
<p>The burning question isn’t whether Greece can be kept in this condition indefinitely; it is why anybody should want it to be. The creditors are never made whole, so what is the point? The answer is not to be found in economic reasoning.</p>
<p>Such reasoning tells us only that a creditor should get as much as possible while there is still time. But that is not what is going on here, where there is always still time and the creditors are making new loans faster than they recover old ones. Sovereign debt is an entirely different species of debt to that whose workings are governed by economic reasoning.</p>
<p>The Greek debt is instead what anthropologists know as <a href="http://www.britannica.com/topic/wergild">wergeld</a>. This is a type of debt found in a variety of societies in different periods. It is typically owed when the member of one tribe kills or injures the member of another.</p>
<p>Some theorists interpret wergeld as the price one pays for the wrong. Others, recognising that no amount of money can right a past wrong, see it as something else: a sacrificial act to show contrition and supplication. <a href="http://www.editionsladecouverte.fr/catalogue/index-La_dette_de_vie-9782707155399.html">Philippe Rospabé</a>, for instance, claims that wergeld is paid in order to suspend vengeance.</p>
<p>The debtors pay to show how sorry they are, to harm themselves through deprivation, and thus to assure those they have wronged that there is no need to take vengeance. The word “pay” itself comes from “payer” - to pacify.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A pre-eurozone court. It was all so simple then.</span>
</figcaption>
</figure>
<p>So it is with Greece. The refrain of those who support the austerity measures is that the transgressions of past Greek governments should not be forgotten. This is very revealing. It explains why the creditors don’t care that they aren’t getting their money back – and why in fact they are lending ever more. For them it is not a matter of money. It is a matter of honour.</p>
<p>The Greeks lied about their financial situation, and for this they must be punished. They must harm themselves to satisfy those they have dishonoured.</p>
<p>We might see the upcoming referendum as a chance for the Greeks to decide whether their penance is done. But it isn’t up to them. Even leaving Europe will not take away the power of their creditors to exact vengeance. It is the creditors who must decide how many homeless pensioners and starving children it takes to restore honour to someone who was once told a lie. It is they who must draw the line between honour and cruelty.</p><img src="https://counter.theconversation.com/content/44104/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Douglas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It might seem like Greece and Europe are arguing about money, but it’s really all about vengeance.Alexander Douglas, Lecturer in History of Philosophy / Philosophy of Economics, Heythrop College, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441512015-07-02T05:13:47Z2015-07-02T05:13:47ZEurope is heading towards constitutional crisis, with or without Greece<p>As Greek Prime Minister Alexis Tsipras stands off against the so-called Troika, questions abound about the future of his country.</p>
<p>But there should also be pressing questions about the future of the European Union. The shaky legal foundations of the EU have been laid bare by this crisis.</p>
<p>Over the past few months, Greek officials and representatives of the Troika have indulged in a succession of tit-for-tat exchanges masquerading as negotiations.</p>
<p>These are only the latest proof of the failure of the EU’s political and legal structures to effectively mediate conflicts and resolve differences between members.</p>
<p>The negotiation of a new <a href="http://europa.eu/rapid/press-release_DOC-12-2_en.htm">Fiscal Compact</a>, the creation of <a href="http://www.esm.europa.eu/">multiple bailout funds</a>, and the (<a href="https://theconversation.com/as-its-power-grows-is-the-ecb-overstepping-its-mandate-36997">potentially illegal</a>) expansion of the European Central Bank’s (ECB) mandate all failed to solve the problems that sparked the crisis in the first place.</p>
<p>Now, five years after Greece’s first bailout, solidarity and trust between citizens, governments and EU institutions are in desperately short supply.</p>
<p>All of this indicates that the euro crisis is a crisis of EU constitutionalism. The union has failed to strike the right balance between democracy and technocratic governance. It has failed to balance the needs of citizens and states in a highly diverse supranational polity.</p>
<p>German academic <a href="http://ukcatalogue.oup.com/product/9780198295464.do">Fritz Scharpf</a> famously asked 16 years ago whether EU governance could be both effective and democratic. Right now, it appears to be neither.</p>
<h2>Democracy down the drain</h2>
<p>Developments in Greece illustrate the EU’s shortcomings. On June 28, the Greek government announced the imposition of capital controls, including bank closures and a 60 euro-a-day limit on withdrawals from cash machines. </p>
<p>This followed the <a href="https://www.ecb.europa.eu/press/pr/date/2015/html/pr150628.en.html">ECB’s decision</a> earlier in the day to maintain Greece’s emergency liquidity assistance at current levels, when much more would have been needed to resupply Greek banks.</p>
<p>From a democratic perspective, it is deeply troubling that such an important political decision was left to the central bank, which is meant to be above politics. The ECB’s assumption of a leadership role in the crisis is equally concerning from a legal perspective, given its narrow mandate.</p>
<p>The decision by Tsipras to call a referendum is also interesting. A cynical reading would be that the prime minister is trying to shift responsibility for his failure to secure acceptable bailout terms onto the Greek electorate. Indeed, former prime minister George Papandreou <a href="http://www.bbc.co.uk/news/world-europe-15526719">tried a similar tactic</a> with a previous bailout in 2011, but was forced to call off his referendum, under pressure from the French and German governments.</p>
<p>It looks as though Tsipras’ referendum <a href="http://www.independent.co.uk/news/business/news/greece-crisis-tsipras-vows-referendum-will-go-ahead-on-sunday-10358506.html">will go ahead</a>, and he is calling for his country to vote against the EU’s demands. But this appeal came just hours after <a href="http://www.bbc.co.uk/news/world-europe-33345219">a letter</a> was published in which he said he would concede to most of the Troika’s requests.</p>
<p>The Greek government has been arguing that allowing the Greek people to decide is the proper, democratic approach but this claim is questionable. Referendums are a blunt tool because they take a range of complex questions and reduce them to a simple “yes” or “no” answer. Holding the referendum barely a week after it was announced doesn’t allow much time for people to properly consider the issues, either.</p>
<p>Moreover, if democracy really is the key concern, then one may ask why the preferences of citizens in the other euro states aren’t being taken into account, when the bailout involves their money too.</p>
<h2>Changing the leopard’s spots</h2>
<p>Despite everything, the Greek government still wants to stay in the euro. Finance minister Yanis Varoufakis has even threatened to take the EU institutions to court to block a Grexit, since it is not permitted by the EU treaties. Given that the euro crisis has been a <a href="http://icon.oxfordjournals.org/content/12/3/545.abstract">five-year-long unravelling of the EU’s legal order</a>, this threat is almost comical.</p>
<p>Whether or not Greece holds a referendum (and regardless of the result), the EU will still be in crisis. Solving it will take major legal reform – including an overhaul of the ECB’s powers and formal recognition of the Eurogroup of finance ministers, which is one of the eurozone’s most important institutions, but which remains an informal body (as Varoufakis <a href="http://uk.businessinsider.com/yanis-varoufakis-eurogroup-statement-june-27-2015-6?r=US">discovered</a>, much to his annoyance, when they had a meeting without him). </p>
<p>Admittedly, all this is unlikely to occur. The lack of trust within the EU, its inability to deal with other pressing concerns such as the <a href="https://theconversation.com/uk/topics/migrant-crisis">migrant crisis</a> and the conflict in Ukraine and the surge in populism in many member states will all make it harder for a rational discussion of the EU’s future to take place.</p><img src="https://counter.theconversation.com/content/44151/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicole Scicluna does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Five years of turmoil shows the union rests on shaky legal foundations.Nicole Scicluna, Lecturer in Politics and International Studies, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/390942015-03-23T13:41:40Z2015-03-23T13:41:40ZGame theory can only get Greece so far in its fight with Germany<figure><img src="https://images.theconversation.com/files/75661/original/image-20150323-17688-11vxbz4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Game for a fight? Varoufakis arrives in Brussels.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/92227533@N07/16516010351/in/photolist-rnd8Co-r4ykr8-r3GL4W-rh3n28-raBFAK-rasSta-rg2oVh-rxupsb-rasRFP-r9r5SK-rbb1Bj">EU Council Eurozone</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>As Greece prepares to go <a href="http://blogs.ft.com/brusselsblog/2015/03/22/tsipras-letter-to-merkel-the-annotated-text/">head to head with Germany again</a> in a bid to settle rancorous talks over its debt burden and austerity policies, it can all sometimes seem like an elaborate game of chess. That feeling is heightened by the media’s perception of one of Greece’s key negotiators, finance minister Yanis Varoufakis, as an academic “game theorist” who really should have a crucial advantage over his adversaries in the cut and thrust of negotiations.</p>
<p>Of course, it’s not as simple as that. The Greece talks provide a hugely useful test bed for the ideas of game theory, but also offer a telling glimpse of its flaws.</p>
<p>As soon as the <a href="http://www.economist.com/blogs/graphicdetail/2015/01/greeces-election">Syriza party was elected</a> with a populist mandate for debt write-offs and an end to painful cuts, the new government always seemed to be heading for <a href="http://www.theguardian.com/world/2015/mar/22/greece-and-germany-move-towards-crossroads-of-the-eurozone">a deadlock of sorts</a> with the “Troika”, the three-headed beast of Eurozone finance ministers, the European Central Bank (ECB) and the International Monetary Fund (IMF). </p>
<p>The perception seems to be that Varoufakis and prime minister Alexis Tsipras have so far <a href="http://www.grreporter.info/en/tsipras_and_varoufakis_failed_due_arrogance/12415">failed to play it smart</a>.</p>
<h2>A theory of everything</h2>
<p>This poses some interesting questions. What exactly is “game theory”? How would it help Greece in these talks? And can it help us understand the dysfunctional situation in the Eurozone?</p>
<p>Well, game theory is indeed very useful in understanding specific negotiation processes and in general helps us to understand how negotiating parties might respond to the others’ actions. It is when it gets down to specifics that the usefulness can start to wane.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=226&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=226&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=226&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=284&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=284&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=284&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Strategic risk. Plotting the Battle of Britain from RAF Uxbridge.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/anguskirk/9296442821/in/photolist-fauGyV-9NKn2C-9NBTQp-9NEKvf-9NKkq5-61wkyo-bGGecn-63TMU8-9NFu2f-dZnfrh-ob9Ao4-faBCDa-od3g9W-d8c7mf-9NKoA3-8Bhfty-7jMSXn-c5Dmh1-9zyf1g-9NCE48-8EPKE8-9eHLSm-7HLx7h-66Y7i6-97zWNq-9MuMhR-8MEiJ3-m7FmTy-c2AV2U-7G2QUB-9zBczA-ia1TXb-dSeeMQ-nXSYUj-nZPP3C-nHs1HK-oLDAa7-bTcdQF-ia281K-nHqU9M-nZPNnj-nZVvVF-nXSYtu-nZPP5b-nHr6o1-nZCmxc-oufEZc-cf5vpS-cf5Ewo-cf5DKy">Anguskirk</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Game theory was created by mathematicians in the first half of the 20th century to <a href="http://www.econ.canterbury.ac.nz/personal_pages/paul_walker/gt/hist.htm">understand and analyse board games</a>, in particular chess. During World War II, it was developed further to understand the <a href="http://cs.stanford.edu/people/eroberts/courses/soco/projects/1998-99/game-theory/neumann.html">effectiveness of military strategies</a>. And in 1944, it was promoted as a mature scientific pursuit <a href="http://press.princeton.edu/chapters/i7802.pdf">in a book by John von Neumann and Oskar Morgenstern</a>. </p>
<p>In the following decades, game theory quickly branched out into a number of subfields based on how one approaches decision making. The object of study encompasses a broad sweep of situations in which multiple decision makers interact with each other. This ranges from board games, to dividing an inheritance among warring family members, to corporate rivalries, to countries negotiating nuclear non-proliferation and pollution abatement treaties. And, of course, to debt restructuring negotiations.</p>
<h2>Tooled up</h2>
<p>And so we arrive at <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=15&cad=rja&uact=8&ved=0CEAQFjAEOAo&url=http%3A%2F%2Fwww.springer.com%2Fcda%2Fcontent%2Fdocument%2Fcda_downloaddocument%2F9781848000575-c1.pdf%3FSGWID%3D0-0-45-502705-p173757927&ei=bQsQVdHlKtDYapL7gYAI&usg=AFQjCNEhKUsFvDUVCfR2asgnE9ObmIA7kw&sig2=iFjX2ZIMun3VDtJ4vv0okQ">modern game theory</a>. Here we can find models considering the consequences of purely selfish behaviour in interactive decision making (so-called “non-cooperative” game theory); the emergence of cooperation (“coalition formation theory”); approaches on how to divide the generated gains from collaboration (“cooperative” game theory); computer algorithms to determine optimal strategies (“computational game theory”); and models of the evolution of social behaviour in biological ecosystems (“evolutionary game theory”).</p>
<p>Therefore, game theory today can best be understood as a toolbox of theories, models and formulas that can be applied to a wide variety of interactive decision situations. These theories can be applied to problems in economics, politics, computer science, business management and even biology, where it is used to <a href="http://oyc.yale.edu/ecology-and-evolutionary-biology/eeb-122/lecture-33">understand the evolution of species</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=567&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=567&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=567&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Piece by piece.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/unloveable/2434532076/in/photolist-8k1hsn-dQb5im-D4cgW-D4c2S-D4bXU-D4diN-D4dn8-D4cbt-D4cdn-D4c4R-D4dqg-D4c7a-D4bZv-D4bUD-mf6EF-4H8ByY-97mV1q-jyJA-puBac4-am6rSo-5PffVv-tuA1s-BuLn-6PP7Lg-fAiB-BtKN-jo1Yt-e4Qj1V-qY78i-aUHMB-fLo2SF-fLo3Wv-fLEBgN-7EjBqd-7EjBv9-4px4SC-8TENBe-ncvdrm-4Yeb3p-rZHbY-7JAKon-gQ3zSd-RVtk-mYC7c-4cjuHZ-7pignW-aGrLeM-7pifjW-6aGTE6-38qPVS">Steve Berry</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>To work smoothly, then, whichever form of game theory you are using requires that the environment fits the specifications of the particular tool or model you choose to employ. Game theory might cover many interactive decision situations, but real life usually throws up amalgamations of a variety of such theoretical situations. You can get hints on how to conduct yourself; but beware thinking you will find a complete solution.</p>
<p>That said, the many models in game theory have resulted in very useful insights that should help make wise decisions, and perform better in any complex decision making process.</p>
<h2>Rules of the game</h2>
<p>For example, one of the most important lessons of game theory is that optimal individual decisions do not necessarily have to result in a socially optimal outcome. This is known as <a href="http://www.econlib.org/library/Enc/PrisonersDilemma.html">a “Prisoners’ Dilemma”</a> (which boils down to a test of whether two separately held suspects should blame the other or keep quiet). Our society and economy is riddled with situations that can be understood as Prisoners’ Dilemmas. Thus, selfishness should not be expected to result in a socially optimal outcome; a lesson that our neo-liberal politicians try to forget.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Poles apart?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/phidauex/10165186573/in/photolist-gugePt-cCupw9-7YwcXM-cCbvah-9sF1WN-9nJr6y-8aCyoQ-8RMcqK-74KScF-7TGVWQ-7FF5Eu-grwgu">Sam Ley</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>From a game theory viewpoint there are two major problems with the eurozone as it is set up currently. First, by design, the eurozone was created as a purely non-cooperative environment. Instead of building a system that binds the member states in a cooperative structure, the institutions were deliberately weakened at its inception to allow maximum flexibility for members.</p>
<p>Second, since its inception as a non-cooperative game, the eurozone has become a Prisoners’ Dilemma in which the pursuit of self-interest by member states has resulted in a bad collective outcome. Initially, Greece was able to exploit the system to build up unsustainable debts, facilitated enthusiastically by the German banks. Now these debts have become a collective burden, for which Greece is blamed. But the problem really is in <a href="http://www.theguardian.com/world/commentisfree/2015/mar/22/germany-obsession-greece-bailout-crisis">the design of the rules of the euro game</a>.</p>
<h2>From theorist to negotiator</h2>
<p>Yanis Varoufakis’ fame as a game theorist is based on <a href="http://yanisvaroufakis.eu/books/game-theory-a-critical-text/">writing a critical textbook on game theory</a>. But perhaps he has not been able to wisely use the lessons from game theory in the negotiations with the Troika. As in any real life negotiation process, game theories can never be applied in their pure form; there are too many aspects of these real negotiations that do not fit these theories. In those circumstances, savvy politicians might be better negotiators than academic game theorists. Practice (rather than theory) makes perfect!</p>
<p>Politicians learn to conduct negotiations by doing, rather than through theoretical introspection. They may well be better at dealing with the shifting sands of a real-life negotiation than a game theorist. Especially since game theory is not really like engineering; it is much harder to apply directly. And it means that Varoufakis cannot be expected to have any advantage over the Troika’s representatives, even if he might be able to <a href="http://www.zedbooks.co.uk/node/20952">explain very well what happened</a> when a deal gets done or Greece finds itself suddenly out of the eurozone.</p><img src="https://counter.theconversation.com/content/39094/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Gilles does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Yanis Varoufakis was supposed to have an academic advantage in tangled talks with the Troika. But politics can mess with the most careful plans.Rob Gilles, Professor of Theoretical Economics, Queen's University BelfastLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/378952015-02-23T22:05:44Z2015-02-23T22:05:44ZThe economic reform path Greece must now follow<p>The world may have heaved a sigh of relief over Greece’s last minute debt deal, but in Greece the conditional four-month extension is widely viewed as a major retraction for the new government. </p>
<p>Syriza came to power on the promise of reversing crippling budget cuts, but must now play a game of compromises. As with any bad marriage, more surprises are likely on the way.</p>
<p>Greece must now submit a formal letter to the Eurogroup, delineating the exact economic policy measures it will take. </p>
<p>The new bailout period will not be approved by the European Commission, the European Central Bank and the International Monetary Fund (IMF) until they endorse the policy reforms as a quid-pro-quo for the extension. In a rare act of kindness, the Eurogroup also intimated to Greece that its government does not have to waste resources travelling for formal meetings, since a teleconference will be organised to endorse the reform package. </p>
<p>There is a tiny problem as eurozone member states will need to ratify the extension through their parliaments, however with the blessing of the IMF, the ratification should not pose any serious threat. </p>
<p>Greek officials are now in overdrive, creating a laundry list for endorsement by the troika. In the heat of the moment, during intense negotiations, the Greek government has inadvertently drowned the valiant idea of ending the bailout. In an equally interesting twist, the troika have become trusted partners of the Greek government. </p>
<p>The Greek government has learnt a few new things from the recent negotiations, seemingly triggering a cultural shift from the politics of disagreement to the economics of conformity. The evolution of the Greek government’s preferences is fathomable and hence predictable. </p>
<p>The hawks in the Eurogroup maintained relentless pressure on the Greek government by planning a meeting of the Eurogroup in Brussels if the Greek government fails to plan and deliver a credible reform program. </p>
<p>In a rather jubilant manner, Greek Prime Minister Alexis Tspiras announced on Saturday: “We won a battle, not the war”. Perhaps he meant to say: “We lost a battle, not the war”. Tsipras knows how hard it will be to sell this new bailout program to his political constituency. The reform package must be acceptable to the eurozone, but should also be approved by the majority of Syriza voters. How can such a fine balance between two intransigent parties be struck? </p>
<p>First and foremost, despite the labour market crumbling under a record 25% unemployment rate, and youth unemployment heading beyond 50%, labour market reforms to enhance flexibility will be a very bitter pill for Syriza voters. Yet this is where the Eurogroup will seek serious attention from the Greek government. In order to placate the eurozone, Greece is expected to compromise by listing future labour market reforms on the agenda. Yet there will be little real change in the manner in which the current labour market is organised. It will be a real victory for the Greek government if it can avoid costly labour market reforms at this stage.</p>
<p>Secondly, for every dollar generated by the Greek economy, roughly one fourth is hidden in the parallel, or black, economy. This means the Greek government is leaking about €20 billion in tax collection every year. It is widely <a href="http://www.newyorkfed.org/research/current_issues/ci17-5.html">held</a> that 70% of self-employed people under-report their incomes to avoid taxes. From misreporting of incomes by lawyers and doctors only, the national exchequer loses taxes worth €25-30 billion. If there is no plan for serious and effective tax reforms, the current government will be seen as a lame duck.</p>
<p>Thirdly, it is estimated that about 15% of Greeks pay annual fakelaki (bribery in the form of cash in sealed envelopes), which accounts for €1 billion in yearly payments on <a href="http://www.spiegel.de/international/europe/wealthy-greeks-still-dodging-taxes-despite-crisis-a-864703.html">rent seeking</a>. At the same time it is estimated that roughly another €1 billion is wasted by companies on rent-seeking expenditures mainly to bribe public institutions. The effect of rent-seeking activities on the Greek economy is mammoth. There will be demand for serious reforms to lower corruption in Greece.</p>
<p>Fourth, though Greece has made significant progress in improving its regulatory environment, there is still scope for improving the ease of doing business in the current reform program.</p>
<p>In summary the items on the wish list are expected to be:</p>
<ul>
<li><p>Improved tax system to create more revenues, promote motives for increasing the funds inflow, entice foreign capital and control the cost of doing business in Greece</p></li>
<li><p>Improved governance, free from political party interventions and with the state-of-the-art know how from the private sector</p></li>
<li><p>Effective privatisations, public and private partnerships and trusts for the transformation of the public sector’s transactional activities</p></li>
<li><p>Removal of obstacles to entrepreneurship by establishing institutional stability mainly through law reform</p></li>
<li><p>An effective mechanism for dispute resolution</p></li>
<li><p>Better monitoring of budgetary figures</p></li>
<li><p>Minimalist measures to initiate health sector reform.</p></li>
</ul><img src="https://counter.theconversation.com/content/37895/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Partha Gangopadhyay does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Having secured a temporary debt deal, Greece must now come clean on the economic reforms it plans to get the country back on track.Partha Gangopadhyay, Associate Professor of Economics, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/377922015-02-23T00:27:33Z2015-02-23T00:27:33ZGreece stares financial apocalypse in the face, and retreats<p>Crisis postponed. On Friday, Greece, the European Union (EU) and the International Monetary Fund (IMF) brokered a four-month extension of bailout loans to the newly-installed government of Alexis Tsipras.</p>
<p>Greece’s bureaucrats now have just 48 hours – until 23 February – to pull together a list of reform proposals. These must be approved by the Eurogroup, comprising all of the eurozone’s finance ministers.</p>
<p>Since the Syriza coalition’s election in January this year, Prime Minister Tsipras and his finance minister, ex-Sydney University economist <a href="https://theconversation.com/yanis-varoufakis-from-accidental-economist-to-finance-minister-36827">Yanis Varoufakis</a>, have engaged in a tough, no-compromises approach to their EU partners.</p>
<p>But the harsh reality of politics meant compromise was inevitable. Unsurprisingly, the weaker player – Athens – ultimately retreated, unwilling to pull the trigger that would usher in a financial apocalypse.</p>
<p>Thus, Tsipras and Varoufakis find themselves in a most unenviable position: on the one hand, they must deliver some kind of victory to placate their supporters at home. But, on the hand, both men must know the painful reality: resistance is futile.</p>
<p>Regardless of how Varoufakis paints this internecine European struggle – making economic policy as if people matter – the irresistible logic of the situation is that Greece has scarcely any room for manoeuvre, and the most Tsipras and Varoufakis can hope for are minor concessions and weekend extensions. Which is precisely what happened this week.</p>
<h2>Zero option</h2>
<p>The stand-off between Greece and Europe’s paymaster, Germany, which has insisted upon strict conditionality for the €240 billion bailouts obtained by Athens during the multiple 2009–12 eurozone crises, ultimately led to the rise of Syriza as a domestic political force.</p>
<p>In 2005, Syriza could barely attract 4% of the electoral vote. Seven years later, the Tsipras-led Syriza narrowly lost the 2012 election. Crumbling support for New Democracy, led by conservative Antonis Samaras, meant Tsipras was effectively prime minister-in-waiting, as voters turned decisively against Samaras’ harsh austerity regime. By May 2014, the <a href="https://theconversation.com/far-right-rises-in-european-parliament-elections-but-is-it-a-euroquake-27157">European Parliamentary elections</a> confirmed the groundswell of support for Tsipras and Syriza.</p>
<p>In December 2014, Syriza <a href="http://blogs.lse.ac.uk/europpblog/2014/12/22/despite-a-looming-political-crisis-greece-is-no-longer-the-threat-to-the-eurozone-that-it-was-in-2012/">forced an early election</a> by orchestrating a minor constitutional crisis. Tsipras swept to power in January this year, promising an end to austerity and renegotiation of the bailout condition, while pledging that Athens would remain in the eurozone.</p>
<p>This final point is critical: at no point have Tsipras or Varoufakis ever suggested Greece would exit the eurozone. Nor have they indicated any desire to withdraw from the EU. The reasons are obvious: since 1981, with one exception, Greece has been a net recipient of transfers from the EU budget. In 2013, Athens received over €7 billion euro, while paying in less than €2 billion. These fiscal transfers range from agricultural subsidies to regional development funding.</p>
<p>But perhaps more importantly, <a href="http://ec.europa.eu/budget/mycountry/DE/index_en.cfm">Germany is the largest net contributor to the EU budget</a>, paying almost €30 billion in 2013. And it is Germany’s massive current account surplus that allows its banks to be the eurozone’s largest creditor institutions.</p>
<p>Thus, it is scarcely surprising that Berlin not only wants the biggest say over how the EU budget is disbursed, it also has by far the greatest influence over eurozone policy, which means Greek politicians will be forced to convince sceptical German policy makers that Syriza will honour the bailout conditions signed by previous governments.</p>
<h2>The German conundrum</h2>
<p>The most implacable obstacle in Tsipras’ and Varoufakis’ path is Wolfgang Schaeuble, former tax inspector, and Germany’s iron minister of finance. Varoufakis’ and Schaeuble’s relationship did not begin well. At their <a href="http://www.bloomberg.com/news/articles/2015-02-05/schaeuble-agrees-to-disagree-in-first-talks-with-varoufakis">first summit</a>, Schaeuble said the two had “agreed to disagree”. Varoufakis swiftly countered that they did not even agree on that.</p>
<p>A note of caution: if you think Germany speaks with one voice on Greece and the eurozone crisis, think again. Since the 1990s, German institutions and political parties have been torn asunder by the divisions caused by what former EU monetary affairs official Bernard Connolly labelled “the dirty war for Europe’s money”.</p>
<p>As Connolly <a href="http://moneyweek.com/interview-bernard-connolly-predicted-the-euro-crisis-62536/">notes</a>, Europe can have a “transfer union” (in which Germany pays other states’ welfare bills via fiscal disbursements) or it can have a “fiscal union”, where EU member states follow a German system of fiscal confederalism characterised by disciplined monetary policy, mandatory low-inflation targets and strictly-policed public deficits and borrowing.</p>
<p>This is Germany’s Pareto-optimal model of how a European monetary and fiscal system should operate. It has been articulated ad nauseam by conservative economists for over two decades. Yet, it exists only in theory. But in 2012, Europe moved a cautious step closer to that model with the promulgation of the <a href="http://ec.europa.eu/economy_finance/articles/governance/2012-03-14_six_pack_en.htm">Fiscal Compact</a> (in force 2014).</p>
<p>However, Germany is divided into at least three camps: anti-euro currency crusaders (mostly university professors and their comrades at the Bundesbank); reluctant participants in the eurozone (the now politically-irrelevant Free Democrats); and those that drove Germany away from the all-conquering deutschmark to embrace the euro currency union in the first place: German industry.</p>
<p>The latter group are the most important. German governments never do anything without consulting industry first, a situation that hasn’t really changed since Frederick the Great. In the global recession of the early 1990s, German industry nearly went broke as the deutschmark (DM) towered over its EU and North American counterparts. </p>
<p>The bill for German unification and the refurbishment of east Germany was DM3 trillion (six times the Bundesbank and the Finance ministry’s original estimate). Daimler-Benz, Germany’s largest industrial combine, gazed into the abyss in 1994; BMW sank billions into ill-considered British automotive ventures and faced huge losses by 1999, the euro currency’s first year of operation.</p>
<p>The chief problem was the exchange rate: the strong DM caused German wage bills to skyrocket, rendering exports uncompetitive. What was needed was an internal devaluation to decrease the cost of German wage labour and reduce the global price of German exports. The euro worked spectacularly well in this respect, losing 30% of its value during its first 18 months of operation (1999–2001). Furthermore, the extension of the EU Single Market to eastern Europe from 2004 saw Germany invest heavily in industrial plant in the EU’s eastern periphery, thus deriving innumerable benefits from low-wage, skilled-labour economies situated within easy reach of the German border.</p>
<p>But the euro had precisely the opposite effect upon Greece when it acceded to the eurozone in 2001. It caused an internal appreciation, meaning Greeks suddenly gained considerably greater purchasing power than they had enjoyed under the drachma. The euro also meant the public and private sectors could borrow in both Eurobond and third-country markets at much lower rates of interest. Markets also assumed there would be no sovereign defaults as the European Central Bank (ECB) could act as the lender of last resort, despite the fact that the ECB’s charter expressly forbids this role. Consequently, this provided an incentive to predominantly French and German banks to lend to Greece and the rest of the EU’s southern periphery: Spain, Portugal, Italy and Ireland.</p>
<p>This is why Germany will not and cannot afford to allow the eurozone to collapse. Quite simply, it is immersed in the politics of national interest. Instead of off-loading the PIIGS in 2012 and cutting its losses, Berlin responded, belatedly, with due diligence: strict austerity underpinning bailout conditions; a fiscal compact; a financial transaction tax; and, reluctantly, with misgivings, <a href="http://www.neweconomics.org/blog/entry/the-ecbs-quantitative-easing-programme">quantitative easing by the ECB.</a></p>
<h2>No Grexit?</h2>
<p>Despite the re-emergence of rumours of a “Grexit”, the news of Greece’s imminent departure from the eurozone has been greatly exaggerated. This is not to say that an orderly exit by Greece could never occur in the future, but it is unlikely precisely because it is in neither Germany nor Greece’s interest for a rupture in the eurozone to occur. This is why the Germans and the French, whose private bank leverage as a proportion of GDP dwarfed that of Lehman’s or Bear Stearns, could not countenance the implosion of the EU currency union in 2012.</p>
<p>First, Greece will not leave the eurozone voluntarily. No Syriza or New Democracy politician is advocating that. Bundesbank officials may cattily brief journalists that it is only a matter of time before Greece is unceremoniously ejected, but the Bundesbank detests the finance ministry, while institutional resentment of the disappearance of the DM in 1999, and its consequential impact upon the Bundesbank’s loss of prestige runs deep in Frankfurt.</p>
<p>Second, a key point worth repeating is that nothing has changed in the EU treaties since the international financial crisis struck the eurozone in 2009. There is no legal mechanism under <a href="http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-European-union-and-comments/title-6-final-provisions/137-article-50.html">Article 50 of the Lisbon Treaty</a> that permits a member state to exit the eurozone, unless that state withdraws altogether from the EU. No state has ever withdrawn from the EU.</p>
<p>Third, there is another reason why Greece has no incentive to abandon the euro system and return to the drachma. Fear of a stalemate between Syriza and the Troika has seen Greek business and investors quietly transferring over €2 billion per day in deposits out of Greek financial institutions. The reason is that if a compromise is not reached over the coming months, Greek banks will run out of cash, leading to a shutdown of the financial system. Even more sobering would be the fact that 25% unemployment, a lost youth generation, slashed pensions, structural reform and five years of painful austerity would have all been for nought.</p>
<p>Tsipras and Varoufakis know this only too well. They were elected to save Greece. Not to bury it.</p><img src="https://counter.theconversation.com/content/37792/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison Chair is funded by the EU Commission.</span></em></p>Crisis postponed. On Friday, Greece, the European Union (EU) and the International Monetary Fund (IMF) brokered a four-month extension of bailout loans to the newly-installed government of Alexis Tsipras…Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/368272015-01-28T04:07:21Z2015-01-28T04:07:21ZYanis Varoufakis: from accidental economist to finance minister<p>Since 2009, the economic situation of Greece has helped expose the architecture and policy regime problems of the European Union and the eurozone. On Sunday the Greek electorate rebelled against the self-defeating austerity policies imposed upon the country by Germany and its collaborators. As the new Greek government begins to take shape an Australian connection has emerged, with Yanis Varoufakis appointed to the crucial position of finance minister.</p>
<p>Of course, there has long been an Australian connection with Greece - Australia has been a major destination for the Greek diaspora of the twentieth century. But Yanis Varoufakis is not really a part of that phenomenon.</p>
<p>Born and raised in Greece, following university studies in economics in England, including a PhD, he came as a lecturer at the University of Sydney in the late 1980s. He stayed at Sydney University for more than a decade, returning to Greece and a position at the University of Athens in the early 2000s.</p>
<p>Varoufakis was a gifted and popular university teacher in Sydney. I know because I taught side-by-side with him for a number of years. He was also a thoughtful and productive researcher.</p>
<p>His research was first focused primarily upon game theory. But he also developed an expansive intellectual reach across what may be called “political economy” in the generic sense, particularly focused on the evolution of capitalism as a global system. He became a highly <a href="https://theconversation.com/profiles/yanis-varoufakis-9969/articles">active commentator</a>, including for The Conversation, and policy advocate in relation to the euro crisis over the last half-decade.</p>
<p>The problems of the eurozone can be more easily understood with an analysis of global capitalism and the place of the US within it. On the one hand, the eurozone then appears as a smaller-scale version of the problem of international imbalances (deficits and surpluses) between the national economies of the global system. On the other hand, as a common currency area, the eurozone and its governance could be contrasted (unfavourably) with a successful common currency area, the United States. The operation of the latter could serve to reveal what was lacking in the architecture of the euro area.</p>
<h2>Hesitant politician</h2>
<p>Varoufakis has described himself as an “accidental economist”. He is perhaps even more an accidental finance minister. </p>
<p>There is no reason to doubt the sincerity of his earlier expressed ambivalence about entering politics and the party-political fray. It is the vacuum created by the failure of the mainstream parties of the centre-left and centre-right that calls forth this participation.</p>
<p>Indeed it is the moral and intellectual failure of the European political class as a whole that is the root cause of the both leftward and rightward shifts of European voters in recent times. </p>
<p>The media’s referring to the new Greek government as “far left” or “radical left” is just an intellectually lazy acquiescence in the language of the European political and policy establishment. </p>
<p>In truth, the position of Syriza is not so way out. That such a perception can have public currency is more a symptom of how far to the right the centre of politics has shifted since 1979 (Thatcher, Reagan) and 1989 (the collapse of official Communism). Syriza is merely left-wing, whereas the mainstream European parties supposedly of the centre-left are no longer left-wing at all.</p>
<h2>A new game to play</h2>
<p>I mentioned above that Varoufakis’s earliest academic research was concerned with game theory, albeit from a rather critical standpoint. He has already <a href="https://theconversation.com/greeces-choice-bargaining-versus-pleading-7718">broken down the realities of one Greek election</a> using game analogies.</p>
<p>Game theory as a method of research in the social sciences is first and foremost about the logic of strategic interaction between players. The situation that is being played out now, between Greece (as well as others of the “south”) and the political establishment in Europe, is without doubt a strategic situation. It is a game of high-stakes policy poker with the players on both sides, perhaps engaged in an element of bluff.</p>
<p>It is interesting that a game theory expert should find himself, now, at the centre of this situation. There is a great deal at stake, for the welfare of the people of Greece, the other high-debt States and Europe as a whole, as well as for the viability of the European Union and the euro.</p><img src="https://counter.theconversation.com/content/36827/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Aspromourgos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Since 2009, the economic situation of Greece has helped expose the architecture and policy regime problems of the European Union and the eurozone. On Sunday the Greek electorate rebelled against the self-defeating…Tony Aspromourgos, Professor of Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.