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Default and Exit Seem Inevitable

grexitUnfortunately, it looks like we are heading towards default and exit. The Syriza government is seeking a political solution. Yet, given that the IMF and the ECB are involved, I do not think there can be a political solution. What is particularly troubling is that in order to avoid crossing “red lines” Greece will end up crossing a lot more serious red lines after default and exit… Fighting against austerity is a noble cause, but you need to know when to call it quits. This is not a game of chicken.

Categories: In English

Greece’s Debt Obligations April to September 2015

xronos

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Grexit No Thanks

I just hope that Grexit does not become the hidden agenda of the Tsipras government. And the reason I worry that this may be the case stems from the rhetoric we heard this week on Greece vs. Germany. This rhetoric could be setting the tone for a Grexit.

Quite possibly Greece joined the Euro prematurely. But exiting the Euro now would be suicidal. You cannot correct a mistake with a fatal mistake. Exiting the Euro in order to make payroll, hire more public workers and build a bigger government is a monumental error. Think of it this way. If Greece had stayed in the Drachma, the Drachma would have slowly been devalued to an equilibrium level. If Greece goes back to the Drachma now, similar depreciation will occur but quite rapidly, with serious consequences and without much gain.

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First Comprehensive List of Reforms

February 24, 2015 Leave a comment

Check list here.

Categories: In English

Timeline of Key Risk Events from Morgan Stanley Research

February 23, 2015 Leave a comment

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Greece’s Debt Due: What Greece Owes When

February 23, 2015 Leave a comment
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Grexit Nein Danke

February 20, 2015 Leave a comment

imagesSyriza and the other Europeans have not come to an agreement yet, but by now I am sure they agree on the following statements:

(i) there is no free lunch;

(ii) the Syriza “bargaining” might have been more successful had they simply declared early on that they are not taking any unilateral measures and they are fighting against austerity, which would have found many sympathetic listeners especially in the South (read Syriza’s scattergun on the Economist);

(iii) the applicable model here is not the Nash bargaining game but, instead, a repeated, dynamic, game;

(iv) the Greeks voted for change because they are fed up with austerity and they did not authorize taking Greece out of the Eurozone;

(v) Grexit and return to the drachma not only will be followed by eventual default on the Greek debt held in Euros mostly by Eurozone countries, due to the inevitable drachma devaluation, but it can also cause a domino effect.

In all, therefore, the Europeans don’t want Greece out of the Eurozone because they will make a negative return on their investment, and the Greeks don’t want to exit any way, and lose their allies. So what are the choices of Syriza? The possibilities are:

(a) bend over backwards (i.e., make a “kolotoumpa”; note that “anadiplosi” would be a better word in Greek) and follow on what the New Democracy and PASOK coalition was doing;

(b) return to the drachma hoping to deliver the promises made;

(c) call for a referendum and ask the people to vote between bending over backwards or exiting the Euro;

(d) blame the Germans and resign.

I believe Tsipras is a driven man of serious convictions fighting for a noble cause who would rather resign (d) than bend over backwards, which eliminates (a). Given statement (iv) above, he would rather call for a referendum (c) than do (b) without consulting with the Greek people, which will end up being extremely painful to them at least initially for several years despite Syriza’s utopian hopes. Choice (c) supercedes (a) and (b) anyway. Hence, we are left with the referendum (c) or the resignation (d). Assuming that the government wants to maximize the probability of staying in power, the referendum (c) appears as the likely outcome but I would not bet the farm on it. All bets are off, allowing for accidents too.

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