Greece at its Limit

Ryan Avent provides an excellent summary of recent developments in the Greek debt drama:

Unpleasant Greek options

TODAY has been nasty day for markets, those in Europe especially. Equities are off. The euro is falling against the dollar. And yields on the debt of euro-zone periphery governments are rising to new heights. The yield on 3-month Greek securities is now over 12%. Markets want nothing to do with Greece if they can help it.

European yields have spiked many times before, and each time European leaders have responded with a new bail-out package or other reassurances to prevent Greek panic from fueling a broader contagion… So where’s this go-round’s intervention? Well the trouble at the moment is that Europe’s leaders can’t agree on one…

…It’s not an insoluble set of problems. But given the euro-zone’s institutional weaknesses, it’s not a walk in the park, either.

I would have used stronger language than Ryan did in that last sentence, but I agree with the sentiment: the EU has demonstrated that it simply does not have the necessary mechanisms and institutions to deal with a deeply difficult problem like this.

Meanwhile, the Greek economy has been shut down by a general strike, the government is scrambling to avoid a collapse in the face of possible revolt by its own members of parliament, and protesters have been fighting “running battles with the police” today in the streets of Athens. All of that means that it seems increasingly improbable that the Greek government will be able to actually implement the new austerity package that was forced upon it by the “Troika” (the EU, IMF, and ECB).

If the agreed-to austerity measures are not passed into law by the Greek government, what happens? That would essentially mean the end of Greece’s voluntary cooperation with the “kicking the can down the road” strategy. And if Greece isn’t cooperating, then it’s really hard to see how the Troika will agree to extend additional loans to Greece. This act in the drama may finally, finally be drawing to a close.

About Kash Mansori 46 Articles

Who is this guy, anyway? And is Kash his real name?

Yes, Kash Mansori is my real name, and I've been writing online about economics since 2003, with a few breaks here and there. After receiving my PhD in economics in the late 1990s, I did a tour of duty as an economics professor at a small liberal arts college in northern New England. The charm of 6-month long winters eventually wore off, however, and I left the academic world in order to move south to warmer climes. I now live in North Carolina and make my living providing economic consulting services, primarily to US and European companies in the manufacturing, high-tech, and finance industries. I have a couple of kids, I enjoy cooking, and I have maps hanging all over the walls of my house.

Visit: MINA Economics

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