The two sensible choices

There are two sensible and realistic choices for solving the Euro crisis. The sensible and realistic choices are:

  • Surplus areas like Germany give deficit areas like Greece free money, indefinitely, or,
  • Weak economies like Greece and Spain leave the Eurozone.

These really are the sensible and realistic choices. You need one of these if you want roughly equal purchasing power across the Eurozone. Otherwise, money will flow from unproductive deficit areas to productive surplus areas, people in surplus countries will get steadily richer, people in deficit countries will get continually poorer, and eventually this will come to a head by revolt or other radical means.

Free money recycles this flow, exchange rates stop it. Economically the first is better because more flow of goods and services and money turns the economy forward and makes everyone consume more in aggregate. The latter choice aims for fairness, sacrificing total volume of trade and industry in the process.

Right now we’re still discussing the free money idea. Free money could be given as tax-and-transfer grants like most states do internally, as endless monetary expansion like the US, or by recurrent debt default and restructuring. The only advantage of the third option is it makes a policy look like an accident.

If free money won’t fly, leaving the Eurozone is the choice. Greece should have left the Eurozone… any time from 2001 till tonight would be good. Cynics would say stay until 2011 while the free money vision of Europe looked ascendant, but certainly Greece should have dropped after that. Greece should leave now.

Dropping out of the currency union has only advantages for the weaker economy. The disadvantages for the stronger economy are that it stops the flow of funds from the poor to the rich and removes demand for their exports. Germany selfishly wants the Euro. Greeks are stupidly attached to it because they equate the Euro with the EU and three decades of progress.

There are also a couple of totally fantastical choices that people might believe would fix the Eurozone, but they won’t work.

  • Economies like Germany and Greece become similarly productive any time soon.
  • Regions fix trade imbalances through fiscal discipline and austerity.

These are myths. It would be great if Greece was a bit more prosperous like Germany and that would take a venture investment ethos, congenial labour relations, an orientation to global markets, nourishing a boutique economy, branding, IP rights, stability and democracy. Well, at least Greece has democracy.

Different economies may become more alike, but they won’t become the same. The Mississippi delta is less productive than Silicon Valley and that’s why the meagre social policies of the US transfer funds indefinitely from rich Californians to poor Louisianan’s. Convergence doesn’t remove the need for transfers, it makes them smaller.

As for austerity, austerity is the null policy. Austerity means to just accept the dynamic of unproductive regions being steadily poorer and productive regions being steadily richer without asking for free money to mitigate it. And fiscal discipline means don’t try the free money by monetary expansion or default routes.

Until 2011 it looked like Europe was going to work like a superstate using free money transfers. This would have been better for all, including Germans. This idea now looks dead. Weak economies should ditch the Eurozone, now.

Ranking outcomes

Greece and the creditors are in last last-ditch negotiations where the creditors aim to keep Greece in the Eurozone and avert default. Greece aims to secure a bankruptcy deal that’s friendly to the poor and which makes growth possible. In subtext, the creditors want Greece to surrender unconditionally to the institutions to discourage similar movements elsewhere, while Greece aims for sovereignty to carry out a democratic mandate.

Recently it looks like a deal might be reached. Would that be a good outcome? I don’t think so. In my opinion the situation has deteriorated enough that walking away is better. Also we must not lose sight of better outcomes that are currently closed, opportunities that are squandered. To keep everything in context, here’s my ranking of possible outcomes from best to worst.

1. A better model for the Eurozone

The best possible outcome would be to change the architecture of the Eurozone to one that suits all economies. Currently the Euro is architected like the Deutschmark, a strong currency with very tight monetary policy similar to the gold standard and strict fiscal discipline. That has been a German political demand, but such an architecture doesn’t suit the UK (who opted out), Latin countries, and least of all weak undisciplined economies like Ireland and Greece. If the Euro were changed to be a weaker and more volatile currency like the dollar, and the ECB pursued loose monetary policy at times of trouble like the US Federal Reserve, weak economies would be better performing in general and would get out of crises easily. I’m not sure how a weak Euro would hurt Germany except psychologically.

2. A Europe with social transfers

The next best thing, if loose monetary policy and moderate inflation are out of the question, is a Europe with social transfers. A hard currency and strict fiscal discipline for governments, but a European safety net to bail out people (rather than governments) when times are bad. These would be things like EU-wide basic pensions, unemployment, and poverty line income support. Really basic stuff. Right now this is anathema in Europe, as relatively well off taxpayers in relatively prosperous economies resent paying social benefits to poorly off taxpayers in weak economies. But this is exactly the system in the United States. Individual US states and large cities routinely go bankrupt, but federal programs like food stamps and Medicaid support their poorest citizens. Is Europe really unwilling to offer the meagre social benefits that the US does?

3. Positive reform for Greece (a good deal)

After several years of deceit and mismanagement, Greek voters managed to fire the corrupt political dynasties that took turns in power and bring in outsiders (SYRIZA) intent on serious reform. Inexplicably, the creditors decided that they’d rather deal with the old guard that committed financial fraud at their expense and proceeded to undermine SYRIZA at every step. This is a squandered opportunity. For the first time in decades Greece has a morally sound government with a strong mandate and a credible agenda for reform. The same reform that Europe wants: Modern public administration, effective tax collection, making it easy to start a business. If the creditors would take Greece’s proposals seriously and engage in good faith, rapid progress would be made. Except success would look bad and Podemos in Spain would want the same.

4. Leaving the Euro and staying in the EU (no deal)

The best outcome currently open, in my view, is for Greece to walk away from negotiations and leave the Eurozone while staying in the EU. Dropping the Euro and introducing a national currency does two things: It lets the state create and circulate money in the domestic economy, and it makes imports expensive relative to domestic goods. For Greece that means the domestic economy will quickly return to health and poverty will be quickly alleviated. Food, housing, and services will be cheaper as they’re domestic. Technology imports and foreign services such as studying abroad will be expensive. The standard of living, which is mainly supported by domestic goods, will rise but Greece will feel a little backward for lack of imports. People will be able to consume more tomatoes and fewer iPhones. Greeks won’t like that because they love their iPhones, but right now tomatoes are more important.

Some common misconceptions about the impact of Greece leaving the Euro:

Greece’s debt is a separate matter from staying in the Euro. Greece owes more Euros than it can realistically pay, so in the end it’ll realistically pay less. If Greece stays in the Euro the creditors have more leverage to ruin Greece, making repayment harder. If it leaves, Greece has more prospects to recover and could decide to default with fewer consequences. Leaving the Euro is not the same thing as defaulting on debt.

In economic textbooks, leaving a currency union and devaluing is good for competitiveness. That works for an industrial economy whose output can scale a lot with small differences in producer prices. Greece produces olive oil and tourism. Tourism is price-sensitive, but it already faces strong market discipline and it’s not that scalable. If Greece drops the Euro it’ll become cheaper, it’ll sell a few more more holidays and foods, and overall it’ll make a bit less in Euros. The competitiveness argument is moot.

If Greece leaves the Euro the financial fallout will be small. The Anglo-Saxon investors already took their losses and generally acted businesslike in this drama. European governments bailed out their investors and are now holding the bulk of Greece’s debt. Because Greece’s economy imploded, this debt is worth less than face value. If Greece leaves European governments can realise this loss, they can continue to hide it, or they can reflate it with ECB money creation – the same choices they face now.

On the other hand if Greece leaves the political fallout will be large. Being in the EU or EEA but outside the Euro is increasingly looking like the better option. It’s where the UK, Denmark, Norway, and Iceland chose to be. If Greece makes the transition relatively painlessly other countries will sooner or later follow and the Euro will either unravel or lose many of its members and become a new Deutschmark for countries west of the Rhine. For Germany, this will be a large political failure.

5. Parallel currencies

Various technical proposals are being floated about Greece issuing some currency in addition to the Euro. The idea is you’d have Euros and Drachmas in your wallet and you could use either, but Drachmas would be easier to come by and worth less. These proposals aim to quit the Euro in substance while retaining it for morale, for appearances, or for the convenience of travellers. Most view them as temporary measures. Parallel currencies are a risky proposition. They work well at small scale. At large scale they’ve been tried by Latin American countries in crisis, with mixed and hard to disentangle results. Overall, depending on the technical details, parallel currencies work out about the same as leaving the Euro or significantly worse. They’re a great plaything for economists, though.

6. Continued austerity (a bad deal)

If Greece accepts the creditor’s demands it will be a bad outcome for all sides. The creditors insist on austerity and prioritising debt repayments over growth, as they have for the past five years. Continuing on this path will keep Greece impoverished and heavily indebted for the foreseeable future, and will bring further suffering and extremism. The creditors appear less concerned with fostering growth or ending the crisis, and more intent to prevent any country from going bankrupt in the Eurozone and then recovering. It’s Europe of debt servitude. The only good thing about this outcome is that it’s pacified. The empire wins, the rebels are crushed, and there’s an unhappy stability. Greece will still be broke and recurrent debt crisis will be the new normal.

7. Capital controls (like Cyprus)

One officially sponsored outcome that’s worse than austerity is what happened to Cyprus. people in Cyprus use a currency that’s called Euro and looks like the Euro, but a Euro in a Cypriot bank or in your pocket is worth less than a Euro in France or Germany because you can’t take it out of Cyprus. What happened to Cyprus is a remarkably cynical way to fracture a currency union and punish a state (for accepting the money of rich Russians) while claiming your shiny currency union is intact. After seeing the kindness of Europe, Cypriots probably wish they’d stayed a British possession.

8. Continued uncertainty

A marginally worse outcome is continuing the uncertainty that we’ve had since January. Since SYRIZA was elected, creditors have been refusing to roll over Greece’s debts and instead are asking Greece to pay them off as they come due. The ECB cut off one form of finance to Greek banks and is reviewing the other kind (ELA) on a regular basis, effectively inciting a bank run. It’s like the US Fed announcing that Michigan state banks could go belly-up any moment now. This strategy aims to damage Greece’s finances and banking system so that Greece will more easily pay its debts, presumably.

9. Leaving the EU

There’s much good in the EU besides an ill-conceived and damaging single currency system. For poor and troubled nations like Greece the EU brings stronger human rights, freedom to settle and work in any member state, and an open market which for ordinary people means freedom from profiteering of various sorts. The great achievement of the EU is that we can be in each other’s countries as citizens, not as barely tolerated guests. We put up with stupid bureaucratic rulings on bananas and cookies to retain this privilege. It is important not to throw the EU out with the Eurozone.

10. Political meltdown

The worst possible outcome for Greece is a disorderly collapse of SYRIZA and the rise of the nazi Golden Dawn party as “national savours”. Greece is closest to the abyss, but throughout Europe the social damage of the new order of austerity is fuelling far-right parties. In France, Le Pen is on the rise. In the UK, UKIP. It would be a sad legacy for Ms. Merkel, our de-facto European president to bring about the rise of fascism everywhere but in Germany.

As said, I think the best outcome currently within reach is number 4, leaving the Eurozone. Taking a bad deal, such as the creditors insist, is currently a worse outcome, and there are many worse ones. There are also better outcomes that would be possible. Currently, the three best outcomes for Europe are politically blocked by Germany.

Greece and its creditors: What has been happening

Since March The Institutions have been refusing to roll over Greece’s debt, claiming that Greece is failing to comply with a program. As long as a deal is not struck they demand that Greece pays off maturing loans as they come due. No country can do that. If Greece doesn’t run out of money in a week or two, it’ll run out later. Every time Greece submits a plan, the creditors reply “No, do as we said originally”.

I feel it’s a mistake to continue this false negotiation and make significant concessions or distressed asset sales, only to postpone a forced bankruptcy by a few days or weeks.

Instead, Greece must send to The Institutions a bankruptcy plan now rather than layer. Since the creditors are not cooperating, in a few days Greece will go bankrupt like so. If the institutions still don’t cooperate, Greece could maybe agree to go bankrupt another way. Tsipras must say this and mean it. In a negotiation you must be clear what you’ll do if the other side doesn’t cooperate. You must have accepted that outcome. To go into a negotiation otherwise is to surrender.

I think a reasonable bankruptcy plan is that which SRIZA set out in its electoral program, removing the concessions that were agreed later and are now seen to be pointless. It’s not clear if bankruptcy will push Greece out of the Euro or whether the Greek State can go bankrupt in the Eurozone like a corporation, leaving the banks in the care of the ECB (like Detroit). I think SYRIZA needs to figure out what the post-bankruptcy recovery plan is, and act accordingly.

Τι συμβαίνει με την Ελλάδα και τους Θεσμούς?

Απο το Μαρτιο, Οι Θεσμοί με το επιχείρημα οτι η Ελλάδα δεν έχει συμμορφωθεί σε πρόγραμμα αρνούνται να ανανεώσουν (roll over) τα δάνεια. Ζητούν λοιπόν όσο δεν επιτυγχάνεται συμφωνία η Ελλάδα να τα εξωφλεί. Καμμιά χώρα δεν είναι σε θέση να κάνει μια τέτοια εξώφληση. Για την Ελλάδα αν δεν εξαντληθούν τα χρήματα σε μια βδομάδα θα εξαντληθούν αργότερα. Σε κάθε πρότασή μας οι Θεσμοί απαντούν “Όχι, κάντε όπως σα; είπαμε απ την αρχή”.

Βρίσκω λάθος να συνεχίζεται αυτή η δήθεν διαπραγμάτευση και γίνουν μεγάλες παραχωρήσεις και ξεπουλήματα για να πάει μια διαδικασία βεβιασμένς πτώχευσης λίγο πιο μακρυά.

Αντίθετα θα πρέπει ο Τσίπρας, πρίν την καταληκτική ημερομηνία, να στείλει στους Θεσμούς ένα σχέδιο πτώχευσης. Αφού δεν συνεργάζεστε, το Ελληνικό κράτος σε λίγες μέρες θα πτωχέυσει έτσι. Αν εξακολουθείτε να μη συνεργάζεστε τότε ίσως μπορούμε να συμφωνήσουμε να πτωχεύσουμε αλλοιώς. Και αυτό πρέπει να το εννούμε. Οταν μπαίνει κανείς σε μια συμφωνία πρέπει να είναι συμφιλιωμένος με το τι θα κάνει αν η άλλη πλευρά δε συνεργάζεται. Αλλοιώς παραδίδεται.

Νομίζω οτι ένα ικανό σχέδιο πτώχευσης είναι αυτό που ο ΣΥΡΙΖΑ ήδη προτείνει στο λαό και στους θεσμούς, ίσως αφαιρώντας τα σημεία παραχώρησς προς τους θεσμούς αν αυτό είναι πια άσκοπο. Ασαφές είναι αν αυτό μας βγάζει εκτός Ευρώ ή το Ελληνικό κράτος χεωκοπεί μέσα στο Ευρώ, σα να ήταν εταιρεία, ενώ οι τράπεζες μένουν μέλλημα της ΕΚΤ. Ο σύρζα πρέπει να εκτιμήσει ποιό απ τα δύο σενάρια προτιμά ανάλογα με το πώς σχεδιάζουμε να κινηθούμε για να συνέλθουμε μετά.

How to understand Greece’s negotiations with its creditors, part 1

Greece: We can’t pay the interest on our debt because the principal is high, the rate of interest is high, and our income is much too low thanks to the income-reducing austerity measures imposed by our creditors.

Creditors line so far: Prioritize paying creditors above anything else. We don’t care about the cumulative damage it does to your economy.

Greece with Syriza: We refuse to do that any more. Besides, can’t you see it’s pointless? We have less and less income to possibly pay you with.

Creditors after election: Well we can’t remove the debt principal from the books because debt is money and European nations’ money would have to disappear.

OK, these are good opening positions for negotiation. Greece is asserting you can’t collect from a business you’re running into the ground. Central bankers are asserting that “Europe’s money is our balance sheet” and you can’t remove debt from the assets side of the balance sheet without something bad happening to the liabilities (money) side.

What next? Compromise I expect. Either central bankers accept that balance sheets with liabilities exceeding assets are OK for central banks, or they’ll figure out a way to make old debt a token asset that generates little or no current account obligations. The first would be easiest, but the economic Zeitgeist is against it so I expect the latter. Some sort of indefinite near-zero real interest rollover as is the case with US or Japanese debt.

To clarify for the concerns of northern European folk:
No-one really expects a nation to pay back its debt. It’s not a project to build a highway, or little of national debt is like that. Nations borrow more or less indefinitely and the amount of debt may rise and fall but that’s an investment concern like the stock market rising and falling in valuation. Generally debt is supposed to rise slowly, and to pay it all back is a bad thing because it removes bonds from the investment market. Neither is Greece expected to pay back northern Europe nor are northern European taxpayers on the hook to pay Greece’s bill to someone. Sovereign debts are not like auto loans.

Rather, sovereign debts are like stocks or mortgages. They’re assets in the banking system. Greece essentially borrowed into a bubble and in 2010 was revealed to be a bad asset. Greece’s economy is worth less than it’s mortgage, so to speak. Bad call, maybe reckless, but it’s the truth. Since then the bad asset that’s Greece’s debt has been passed around until it ended up in Europe’s central banks, the way bad assets in the US ended un in the Fed. That’s OK, it’s partly what central banks are for. No one is going to liquidate a central bank because its liabilities exceed its assets. Except the ECB, if they decide to. But that would be dumb.

So what the negotiation is about is seeking one of two outcomes: Either agree in banking circles that having big holes in the balance sheets of central banks is OK, in which case they can write off a big chunk of debt and put the remaining amount back on the investment market on a sound footing, or figure out a clever way to keep the debt on the books so the books look neat but the debt generates no real interest or pressure on the real economy. The first is emotionally cleaner and revives the economy, and it’s what Syriza wants. The latter buries the problem until it dies of old age and is the Japanese approach. I like Japan…

Here’s why I’m voting SYRIZA

I’m in Greece, partly so I can vote in the upcoming Greek elections where the leftist euro-reform party SYRIZA is expected to win. SYRIZA would probably win without me, but I felt it was important to come and vote for this important event. From the tone of the media inside or outside Greece you get the impression that a SYRIZA victory represents some kind of Euro disaster. On the contrary, I feel a SYRIZA government in Greece (or another one like it in Spain or Italy, this is about policy not people) is a bold step towards the solution. I regard it with optimism, even jubilation. Let me tell you why.

Disclaimer: I’m close to some SYRIZA candidates, policy thinkers, or MPs so I may be biased.

First why am I voting in Greece? I don’t live there. It would make more sense for me to vote in the UK where I live and pay taxes, but I don’t get the privilege. I guess native Britons are afraid I might vote for someone worse than David Cameron. Our concept of EU citizenship is still half-baked compared to America so we vote for national elections in our country of origin. We’ll fix it, but until then we have EasyJet democracy. In any case, I don’t feel strongly about voting on Greek affairs. I feel it’s important to vote, via Greece since that’s where I have a vote, for changes in Europe.

At a basic level I feel a duty to avert a bad outcome and push for a good one. If you recall, two elections ago the extreme right scored well in parliamentary elections in Greece. A surprising result that showed rising intolerance, fear, and naive insularity in Greek society. I find it abhorrent. At the same time you saw the Front National in France and Britain’s UKIP, which I see as equally negative but better at hiding behind a veil of respectability, gaining ground. SYRIZA is the polar opposite of these parties. In a climate of extreme right-wing euroskepticism, I feel it’s imperative to vote for leftist euro reform in Greece, Spain, or elsewhere. So that’s a defensive reason to turn up and vote.

The other reason, and the main one, is I don’t want an EU president and finance minister elected only by Germans, running the EU in a way that only suits Germany. Ms Merkel is our de-facto EU president. It’s clearly not Mr Hollande or Mr Juncker. Mr Schäuble is Europe’s finance minister. Whether German citizens like it or not, these officers set policy for the Eurozone, not just for Germany. They run the Eurozone in a way that serves the interests of narrow or short-sighted mostly German capital while driving real economies especially in the south into depression. This is wrong, and we need to use the democratic process to change it. Because of institutional inertia we non-Germans can’t vote for the Eurozone’s de-facto president and finance minister. Eventually these will be elected EU-wide but now, urgently, we must force our German-elected EU leaders to change their policies.

The way to do this is for the governments of peripheral countries to confront Ms Merkel and Mr Schäuble with the failure of their policies. This is what SYRIZA intends to do. It’s not an anti-Europe or anti-Euro party but it has to say, realistically, that current EU policy towards the periphery is not working. Greece’s economy is in depression and it’s debt is unsustainable, as it has been since 2010. Debt restructuring and expansionary monetary policy are needed to end the crisis. A growing consensus of economists agree, so we witness establishment papers like the FT urging the same policies that SYRIZA favors, for pragmatic economic reasons.

What will happen if SYRIZA is elected and starts renegotiating debt and austerity measures with Berlin? I think mainly compromise. EU institutions will have to accept balance sheet losses, which can easily be covered by monetary expansion. Greece will have to live within its means day to day, which given the big drop in incomes since 2010 is now possible. SYRIZA is new so it can enact better tax policy, touching previously untouchable classes, and in return can reasonably ask the EU for welfare assistance towards the poorest citizens. On election night the markets will jitter and possibly overreact, but forcing a Grexit is in nobody’s interest. In the long run markets agree with SYRIZA’s program and EU-wide policies such as quantitative easing that it aligns with.

A win for SYRIZA will be an important event for Europe, not because Greece is important but because some peripheral country needs to stand up for a change in EU policy. It could be Spain or Ireland, but looks like it’ll be Greece. Far from that being a disaster or some new chapter in the Euro crisis, I think it’ll be a triumph of the democratic process and post-crisis Europe’s finest hour.

Είναι επικίνδυνος ή αναγκαίος ο ΣΥΡΙΖΑ?

An unusual blog post in Greek about the suitability or otherwise of the socialist SYRIZA party for governance. I think it’s what Greece needs. Translate this badly with Google.

Το παρακάτω ακολουθέι απο μια συζήτηση με τον πατέρα μου, που λέει περίπου τα παρακάτω (συνοπτικά):

Ο ΣΥΡΙΖΑ είναι επικίνδυνος γιατί διακατέχεται απο αριστερές επαναστατικές ή λαικίστικες ιδέες που δεν ταιριάζουν στην εποχή μας ή δεν είναι δυνατόν να τις εφαρμόσει η Ελλάδα όταν περιβαλλόμαστε απο μια άκρως καπιταλιστική Ευρώπη που απαραίτητα μας στηρίζει. Αν βγεί λοιπόν θα κάνει κινήσεις τύπου Αντρέα ή τίποτα ή χειρότερες τυχοδιωκτικές ζημιές.

Η απάντησή μου:

Οι δυο παραμετροι που προσδιορίζουν την κίνηση της Ελλάδας ειναι το πρωτογενές έλλειμα/πλεόνασμα, αν δηλαδή μπορούμε να ζήσουμε τον εαυτό μας, και οι προσδοκίες των Ελλήνων για το πώς θέλουν και φαντάζονται τη χώρα αυτή και το μέλλον.

Οσον αφορα το πρωτογενές έλλειμα:

Όλη τη σύγχρονη περίοδο το Ελληνικό κράτος δε μπορούσε να συλλέξει αρκετά χρήματα για τα έξοδα του και κάλυπτε το κενό με κάποιου είδους πληθωρισμό: Έκδοση χρημάτων, υποτίμηση της δραχμής, ή δανεισμό (έκδοση ομολόγων) χωρίς να υπάρχει πρόθεση ή προοπτική αυτο το “χρέος” να επιστραφεί ποτέ. Έτσι κάνει και η Αμερική. Τα ομόλογα των χωρών κατα κανόνα ανακυκλώνονται και αυξάνονται αενάως. Οι πρώτες δυο μέθοδοι έκλεισαν με το ευρώ, και τα ομόλογα δούλευαν μέχρι το 2008 οπότε τα χτύπησαν οι επενδυτές και τα επιτόκια εκτινάχτηκαν.

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Greeks should vote against Merkel tomorrow

I’ll vote against Angela Merkel in the upcoming Greek elections, and I think it’s very important that all with the right to vote in Greece do so. The choice is as follows:

If Antonis Samaras, the conservative New Democracy party gets elected his government will implement the austerity, deflation, and asset-stripping recipe/punishment prescribed by big European Capital through the German government. The economy will continue to deteriorate, a lot, until whatever is left of Greek capital (mostly small and medium business) is destroyed and Greece becomes a cheap labour and no social safety net state. There will be riots, fascism, and widespread hardship in Greece especially amongst old people and the self/family employed. The successful enforcement of austerity and de-capitalisation will be roundly seen as a triumph by EU and international capital, and Spain and Italy will be next in line for the same treatment. That is why the Greek press and even the German edition of the FT are practically intimidating Greeks to accept it. Vote this way or unspecified bad things will happen.

If Alexis Tsipras of the left SYRIZA (means “from the root”) party wins, his government will reject the terms of the austerity and impoverishment package and force a re-negotiation. He is not especially anti-Euro and neither is Greek public opinion. A hard rejection of the austerity terms by Greece will force the Eurozone, meaning the ECB and Ms. Merkel, to shelve the “austerity for the losers” doctrine and come up with something else. There will be a period of frantic deliberation, whose possible outcomes include: very optimistically reforming the Euro to a model that works and is under political control like the US Fed; realistically some form of flawed compromise with the Euro and ECB in the hands of private capital but with a human face; and pessimistically and unlikely a breakup of the Euro. In the latter case, Greek savers will lose another chunk of their savings (unless they move them to other EU banks, in which case they may lose them outright due to unpaid Target 2 balances). Germany will be stuck with a strong currency and exposed banks, which will require inflation. More to the point, the Merkel government will be seen to have presided over a colossal failure and will likely lose power, perhaps prematurely.