I thought I would take this opportunity early on in the semester to take another look at one of the bigger stories of the summer: the brief time in June and July Greece stood on the brink of default and the Eurozone stood on the edge of crisis. Not only was the international media thoroughly aflutter over the situation, but emergency measures imposed on Greeks at best proved a severe inconvenience. Most visibly, capital controls curtailed the ability of Greeks to access their savings, leading to long lines for ATMs.
NPR’s Planet Money team interviewed a man who, disillusioned with the financial system and fearful of exactly these kinds of restrictions, devised an alternative means to store his nest egg: in a secret compartment in the back of his refrigerator. At the time of the interview, he was planning on taking out what was left of his deposits at the bank.
Not only is the current situation unfortunate for Greek citizens (leading at least one to one-up the money under the mattress strategy) but the turbulent factors underlying it have persisted for many years. In fact, APM’s Marketplace has gone so far as to compare it to “Groundhog Day,” a nightmare scenario where the same experiences are relived interminably.
The persistent unpleasantness of the Greek situation raises the question: “why?” Obviously, the burden of its outsized national debt cannot be disappeared with a magic wand. However, analyzing the politics behind the deadlock through the lens of game theory and behavioral economics might cast light on why the situation has been so gracelessly handled by policymakers—only temporarily patched over under the immediate threat of a looming or even unfolding crisis. I’ll continue the discussion next week.
Interesting piece. As is always the case, we can’t observe the counterfactual. I’d be fascinated to see what would have happened if the bailout had been provided absent the austerity requirements. Would the moral hazard issues just led to continued fiscal overspending by the Greek govt. or other EU members?
Another ‘unintended consequence’ story from NY Times recently about the re-emergence of barter in the crisis is here: http://nyti.ms/1L1g7Yi