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Comment by microtonal | Hacker News Reader

Good question. Another possibility: he knows there is nothing to win.

My theory is that this was his endgame: the eurogroup is now forced to make a move, unless Merkel and her entourage want to go down in history as those that broke up the Euro by moralizing demands of having to pay back debts but could have prevented it. And Greece will use exactly this smugness as leverage for further negotiations.

Maybe that wasn't his plan, but he can now see the very situation you depicted. I believe he was too proactive for a government that bases a lot on pretense (read - paperwork). Old world vs. New World.

The demands are not moralizing, but consistent. If other countries went through austerity, why should Greece be exempt? Imagine what will happen if everybody suddenly thought, that if they act aggressively and recklessly enough, everybody else would pay?

It's a race to the bottom.

Because, in history, other countries were forgiven their debts, as well, especially so Germany. If Germany gets their debts forgiven after waging war over Europe, then why not Greece after living beyond their means? That would be consistent, as well. And helpful if it means it keeps the Euro zone together and relatively stable.

And let's not forget how much of the help for Greece wasn't actual help, it was a bailout by proxy for German and French banks. How would the political climate in Europe be if these banks had needed an explicit bailout?

You are talking about historical consistency. What the European establishment needs is political consistency. The Baltic states, as well as Spain, Portugal, and Ireland did go through varying degrees of austerity. If you start treating one member differently, right after other members went through difficult reforms, why should other members then play ball? And that is false reasoning: does this mean that any country can wage war and racial extermination and then be forgiven, because Germany already was?

Regarding the bailout thing. A bailout is, per definition, paying off the creditors (banks in this case). The reason people do it at all is to keep the confidence of the money market. Greece wouldn't need a bailout if they were planning to stop taking on any debt at all. But they aren't.

To answer your question, if the banks would take the hit, then it would hurt private households. People think of banks as some super dodgy prop hedge funds, that use their own money to reap super profits. They don't. Banks invest the money of their clients and bag any difference between the interest rate they've offered and the interest rate they've earned. So again, the hit would go to pension funds and possibly depositors. Now, what kind of political climate would be in Europe, if say a German pensioner suddenly got less, because the Greeks couldn't pay back?

> If you start treating one member differently, right after other members went through difficult reforms, why should other members then play ball?

Yep.

We are talking iterated games and rational expectations here. Something you'd expect an expert in game theory to understand -- which he of course does, leading to the conclusion that he has been very dishonest the whole way through.

(I agree with the rest as well.)

Maybe austerity is a really bad idea. It has its place in the general monetary toolbox [1], but history shows that it is really not worth to use only that (Mark Blyth: Austerity - The History of a Dangerous Idea [2]). Also, even the IMF has studies where the positive effects of austerity are questioned [3].

    [1] http://www.economicprinciples.org/
    [2] https://www.youtube.com/watch?v=JQuHSQXxsjM
    [3] http://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf

Also, the EU needs much more wealth redistribution than it is currently happening, and austerity acts contrary to that: https://plus.google.com/+JeanBaptisteQueru/posts/CPB9bwHqsfn

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