Grexit
The exciting news today (besides tonight’s blizzard!) is the Greek elections. Yesterday an anti-austeristy party called Syriza won the plurality of the votes, and is on the very verge of winning a majority as well.
This is huge because the leader of the party, Alexis Tsipras, has basically promised the Greek people that, if elected, he would refuse to pay off any more of Greece’s debt.
How did this happen? Well, From the perspective of the Greek people, the negotiations around their economic problems have been taken on by their last two governments since 2008 with a bunch of European technocrats behind closed doors and in an intensely undemocratic process. Well, this is when democracy fought back.
Possible ramifications: If Greece indeed defaults, and it might leave or get booted out of the Eurozone (this is called “Grexit”), which may or may not be a good thing for Greece long term, but in any case is very interesting. Short term, the black market in Greece is said to be highly developed, so the average person isn’t entirely dependent on functioning banks anyway.
Also, I’m sure Greece has been looking at Argentina recently to see how their (accidental) default has been going, namely not as bad as everyone predicted. The world will be watching Greece to see what happens and to see how smaller countries can and will deal with stifling debt in the future.
mathbabe 
What’s a little bit mystifying is that Syriza has promised a renegotiation of Greek debt, but at the same time, has committed to keeping Greece within the Euro. Presumably there is some hope that Germany et al will willingly grant better terms, but the moral hazard that this entails with respect to Spain, Portugal and the other borrowers is likely to prevent that happening in any meaningful way.
Greece’s best hope for rescuing its own economy appears to be in reducing external debt, leaving the Euro, devaluing the currency to a market rate and working its internal issues out using the tools available to its government and central bank. However, the publicly stated commitment to staying in the Euro precludes many of those choices.
The result is an unresolved tension between means and ends. There looked to be tremendous joy at the prospect of an end to externally imposed austerity, which is completely understandable. What’s less easy to comprehend is the commitment to staying within the system which is imposing the austerity in the first place, and it will be interesting to see how that is resolved going forward.
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I agree that it is on its face contradictory. My guess is that even the Greeks knew that when they voted, but the urge to get rid of current strains overwhelmed their desire to stay in the Eurozone. I predict they will leave.
On Mon, Jan 26, 2015 at 10:47 AM, mathbabe wrote:
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Greece has a smoking rate of 40% — the highest rate in the EU and almost twice that of the US and the UK with an excessive amount of money paid for by health care costs of tobacco. While tobacco taxes were increased as part of the austerity package, a recent BMJ study suggests and additional increase of $2.25. Raising the cost of tobacco is the best way to help people to quit smoking and to keep teens from starting. http://www.ncbi.nlm.nih.gov/pubmed/23467654
It is my understanding that there are number of structural issues and corruption in the Greek economy. Also, although the retirement age was ***raised to 63*** it is still lower than other countries like Germany that recently raised their retirement age to 67.
About a decade ago the US forced Israel to undergo structural changes in the economy that dramatically improved Israel’s economy. Naturally in the case of Israel there was a lot of resistance from special interest groups, but Israel needed the US assistance (I think they were additional loan guarantees) so the structural reforms went through.
The EU should do the same with Greece that the US did with Israel.
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I’d be curious to know what percentage of cigs sold in Greece are actually taxed; their black market is huge, and it’s pretty easy to ship in contraband by way of Cyprus.
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I have for a while thought that the best one could imagine for the Eurozone is actually forcing the Germans to issue a New Deutsche Mark, which would then rise sharply against the euro.
The question is whether you’d need to have France issues its own currency as well. It’s possible that relative costs between the periphery and France are also somewhat out of whack, if not as far as between the periphery and Germany. But it seems like a France-dominated ECB might be slightly less crazy than a Germany-dominated ECB — that is, the French seem less likely to freak out if their local inflation rises to 4-5%.
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