So the Greek cabinet has finally reached a deal on austerity measures required to get their next bailout and negotiate a debt reduction! These measures are really harsh (e.g., a 22% cut to minimum wage) and also it still has to be approved by the legislature as a whole, which might be trickier. In the meantime, the German government (who are paying for a big part of this next bailout) has gotten much less shy about threatening to leave the Greek government to the wolves without some drastic and credible action on government finances, and Greece is seeing another 48-hour general strike.
In light of all this I figure it’s productive to consider how things could play out from here. (I realize I’ve made this kind of post before, but things have changed in Greece - especially with the technocrat government and upcoming elections.) All these probabilities are totally subjective, obviously.
Implement austerity to orderly default (31%)
This is looking like the most likely option right now - the rest of the eurozone imposes really harsh conditions, Greek citizens continue to suffer, the debt reduction is insufficient, and then eventually they just give up on trying to pay their debt. This would almost certainly mean leaving the eurozone (but not the EU).
Installation of EU overseer (10%)
This is probably going to be mandatory if the Greek government needs another bailout. Germany, the Netherlands, and other rich eurozone countries will require that the Greek government turn over budgetary veto power to an EU-appointed oversight agency. This would be a serious loss of sovereignty and would likely lead to widespread political violence.
Failure to close agreement; disorderly default (25%)
This current series of negotiations has to wrap up by Monday or so. If that doesn’t happen, Greece defaults. Expect bank failures in Europe and almost certainly Greek expulsion from the eurozone. If credit default swaps trigger a worldwide selloff, there will certainly be another 2008-style crash and recession.
Reneging after election; disorderly default (22%)
This is getting more and more likely. Whatever government ends up in power after the Greek elections on 20 April could just repudiate the deal and reverse the austerity changes. There are politicians promising to do exactly that. Obviously the rest of the eurozone would be furious - but what can they do, invade? Banks, hotel chains, manufacturers, and other multinationals would all pull out en masse to avoid likely EU sanctions. A global financial crash is likely here too.
Failed election; disorderly default (2%)
This one is also growing in probability. There are seven parties with a real national presence in this election, and it’s not clear that they can form any kind of stable coalition. Also, political violence is getting bad as people see increasing hardship with no benefits. It’s hard to predict what this would look like, but Greece would likely leave the eurozone.
Note that under none of these scenarios does Greece return to full functionality in the next five years or so. With no jobs and no growth and massive government spending cuts there’s no way that the government can get things back in order in the near future. At this point, this whole exercise is more or less just about trying to mitigate contagion to financial markets and ensuring that eurozone governments get paid.
(The image above is from this slideshow of the most recent 48-hour strike. Heads up: it shows some nontrivial police brutality.)
you should really be following jakke if you care about this kind of thing. he’s smart.
