A notable quote (h/t Tom Hickey at Mike Norman Economics):
Germany’s Mr Gabriel said any debt relief for Greece is out of the question at this stage since it would cause a collapse of discipline across the eurozone, triggering copycat demands from other countries in distress. “It would blow up the euro,” he said.
I am no game theorist, but to me Mr Gabriel’s statement underscores that if Syriza holds firm, Greece will ultimately win one way or the other …
If Syriza negotiates debt relief and an end to austerity, it will embolden Italy, Spain, Portugal and others to demand similar. In response, Germany can either go off the common currency, effectively ending the euro, or agree to the common currency arrangement being reconstructed on a more macroeconomically sane (and hopefully democratic) footing. The latter appears to be Syriza’s preferred outcome.
If, instead, no agreement is reached and Greece is forced off the euro, Syriza will be freed to reintroduce the drachma, pursue sensible macroeconomic policy and restore employment and growth. The benefits of leaving the euro would soon become evident to other struggling European nations as well as to the Greek population.
So, to this untrained eye, it seems that the troika has no hand and must rely on Syriza folding inexplicably. The most the troika can do is kick the can down the road another block or two, postponing ultimate resolution (troika capitulation or grexit) a while longer.
Mainstream media, in presenting Greece as without hand, appears to be laboring under two very big misconceptions.
The first is a mistaken view that grexit would be disastrous for Greece. If issuing your own currency was disastrous, the rest of the world would be the economic basket case, rather than the eurozone. It is not without good reason that successive UK governments have given the euro a wide berth all these years. Under present arrangements, the euro is economically and politically unsustainable. Reintroducing the drachma would facilitate a prompt restoration of economic stability and growth in Greece.
The second mistake is to imagine that debt relief and an end to austerity in Europe is “unaffordable” and would destroy the euro. The ECB has unlimited capacity to issue euros, just as currency sovereign national governments have unlimited capacity to issue their own currencies, and such issuance is needed right now to restore demand (employment, growth) and price stability (avoid deflation).