9 ms·

In Greek Debt Puzzle, the Game Theorists Have It

69 points by Luc 11y ago

wsc981 11y ago
I thought George Friedman had some interesting perspectives on the Greece, Germany and the dept crisis. In this video [0], Friedman explains that keeping all countries in the Euro is very important for the German economy (export + welfare state). And it seems the Greece government uses this knowledge in their negotiations with the EU. --- [0] https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545 https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545
- netcan 11y ago
  Wow. Fascinating perspective. I had just commented with my own bias/perspective on what the central problem is (I have some background in economics, hence a relatively mature opinion set) and this is another undeniably key piece of the problem, this time from a political economy rather than an institutional perspective. I will definitely follow this guy. Very convincing. thanks
- ExpiredLink 11y ago
  Greece is 2% of the EU economy ...
  - netcan 11y ago
    ..but more than 2% of germany's export market. Also, Greece is a sort of canary for larger countries: Italy, Spain, Portugal, and to an extent, France.
    - eamsen 11y ago
      In 2014, Germany's exports to Greece grossed ~5 billion Euro [1] which is less than 0.5% of Germany's total exports. [1] https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands (for the lack of a better source)
      - netcan 11y ago
        I stand corrected. *edit, does this include interest payments?
  - zhte415 11y ago
    Germans have to put their money somewhere. A significant proportion of the Eurobubble / PIGS mess was German savings leading to German banks funding banks in outer Eurozone that in turn funded bubbles and speculation, and the bigger the bubble, the more they received from German banks.
- furyg3 11y ago
  There are some perspective's that think that having the Greece in a crisis (but not a collapse) is also very useful for countries like Germany because it weakens the Euro which strengthens their exports.
netcan 11y ago
Virtually everyone agrees that a default by Greece is the least desirable outcome for both Greece and its creditors That, I think is a key part of the problem. In the US context it's known as too big to fail and applies to banks. In Europe it's unnamed. The reality of every loan and every indebted entity is that default is a possibility. For a state to essentially become insolvent is no less likely than an individual or company. For some countries it is virtually inevitable on a 10-20 year scale. Before the euro, Greece dealt with this like all other countries, by printing money. They use the cash to pay debts and the resulting inflation actually helps manage national finances, that tend towards inefficiency and overpayment to vendors, employees, etc. If loans are denominated in foreign currency, debtors do not participate in the "haircut" and the danger of inflation notches up a bit. No one thinks this is an ideal system. It's certainly not better than not becoming insolvent, but it usually works. The Eurozone took this away without providing a working alternative. They solved liquidity issues using bailouts, emergency loans and nationalisation of debts and bad assets, but liquidity<>insolvency.
- simonh 11y ago
  So essentially back when Greece had it's own currency, it could decreate the cost of e.g. it's pension payments by printing more money, decreasing the value of the payments without decreasing the face value of the pyments. They'd pay pensioners the same amount in drachmas, but those drachmas would be worth less. Now they are part of the Euro, the only way to cut the cost of their pension payments is to actualy cut how many Euros they pay to pensioners. For ideological reasons, the Greek government isn't willing to do that. Membership of the Euro is a lens that reveals exactly how many clothes the Emperor is or isn't wearing.
  - kokey 11y ago
    Perhaps they need a solution inspired by the Brazilian Real. Pay government salaries and pensions in a different currency, called the 'faux' or something. The value won't change, but how many Euros you can get for 1 faux would depend on supply/demand.
    - 11y ago
danieltillett 11y ago
The Greeks might have a problem with corruption, but they are not stupid. They will find a way through this mess, but I suspect it won't be pretty.
coldcode 11y ago
The complexity of human behavior and the inability to model the real world makes these types of "games" interesting to watch, unless of course it's your money on the line. The illustration of the three-sided chessboard was fascinating.
- yk 11y ago
  The important thing about the three sided chessboard is, that one or more parties may actually play capture the flag.
- netcan 11y ago
  It would be fun to play, especially if it was online and anonymous. To win, you need to destroy one player with the aid of a second and remain strong than your ally. Committing pieces to offence would leave you vulnerable, but successful attack could earn you queens.
ExpiredLink 11y ago
> Some are painfully aware of the disaster that awaits Europe if Greece defaults. Others are less aware. Some are utterly unaware. They think it can be contained. Greece's default is as important for the EU as Detroit's default was for the USA. The rest is media burlesque.
throwaway12357 11y ago
What would be the impact on the Euro currency if Greece left the Euro-zone? I would guess the Euro would take a small hit, but bear (speculation) wouldn't have much too feed upon. This due to the fact that (1) Greece is a small part in the Eurozone and (2) the other countries that were having problems (Portugal, Spain, Italy, Ireland) seem to have things stabilized.
- zhte415 11y ago
  I imagine the effect would be 'is this contagion'? But perhaps a fear of bipolar contagion - will other weaker economies leave (and the Euro become increasing like the Deutschemark - high, stable, low interest rates) or will Germany leave (and the Euro become a currency associated with volatility).
thyrsus 11y ago
Is the current government having any success pursuing tax fraud, which might account for more than half the government's deficit? http://www.economist.com/news/europe/21565657-greek-tax-dodgers-are-being-outed-national-sport-no-more http://www.economist.com/news/europe/21565657-greek-tax-dodg...
- LukaAl 11y ago
  I found no number to say Yes or No but the past plans was naïve at least on this topic. A big reason for this it is that the constituency of all parties play with tax fraud.
_cipher_ 11y ago
The sad thing in this (politics) is that no one gives a sh!t about real people and real situations besides imaginary currency. Over the last few years, while Greece sinks slowly due to financial situation, IMF and Germany won't back on austerity measures demands. Even if, in reality, those measures are making the country sink even deeper due to very low income and chopping away peoples' pensions. As I live in Greece, I can say for sure that the situation is getting worse and worse over time. While Greece took huge loans over the last few years, almost everything went to fuel German and French banks so they won't collapse. Very little -if anything- was used to help the situation. But not even those same countries acknowledge that fact. They demand "their" money that used to fuel their banks. Smart thing (not). Of course I could be a troll and mention that after WWII Germany received a lot of help to be able to reconstruct the country, even if they slaughtered millions across Europe. But that's politics. ;) Personaly, I'm tired of all that bs. Europe is _not_ a union and this situation is getting out of hand. Supposedly "friendly" countries demanding everything from another member of the "union" is not what Europe was -supposedly- all about. At least with a new government that is able to say the word 'no' for a change, almost anyone can see the true face of European "union".
- Retric 11y ago
  Even if every Euro of Greece's debt was gone tomorrow the country would still need more money every month than it gets in taxes. That's a long way from Austerity. There unbalanced budget is 100% Greece's fault and has absolutely nothing to do with the EU. Long term the government has three options, collect more taxes, pay fewer benefits, fail. It's obvious which one Greece wants. PS: Actually paying down their debt is another issue and would require Greece to maintain a surplus. Though, if they had that surplus they could just default and probably be better off.
  - taki1 11y ago
    Somehow never was true with Iceland. They never repaid and they are just fine. Actually better than fine. I still remember all this fear-mongering coming from mainstream (i.e. the Economist) that the world will come to an end for Iceland if they don't repay. Nothing happened. They are in much better position than Greece. But they said no to EU demands. They said no to IMF demands. They showed big finger to bankers. And that's the lesson for Greece. They should quit Euro (Merkel will never allow because others would follow suit) and debase currency. Do exactly as Iceland did.
venomsnake 11y ago
A greek default is not greek problem but a german one. Let them default. The Greek economy cannot realistically be more harmed. And Greece will still be in the EU with the access to free travel and open market. No harm done.
- chrisbennet 11y ago
  "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. P. Getty
pdkl95 11y ago
Greece? Hmmm... You borrow at one and buy at ten You use the spread to bury the dead You bank it at four and Repo more Then go knock on the ECB's door If you want a detailed explanation of how that trick worked - the moral hazard trade that European banks took advantage of when the Euro centralized money bu not monetary policy - and how a lot of people are trying to blame sweep that under the rug and get other people ("the poor", mainly) to pay for it by blaming Greece and insisting on dangerous austerity programs, highly recommend Mark Blyth's[1] recent lecture[2]. [1] Prof. econ, Brown University and hilarious lecturer [2] https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 (note: #t=673 to skip the unnecessary introduction)
JamesBarney 11y ago
Just to help correct a common misunderstanding that I've seen popup in thus thread. Greece is running a budget surplus. The government is not spending more than it's taking in[0]. [0]http://www.wsj.com/articles/greece-misses-target-on-budget-surplus-1421244654 http://www.wsj.com/articles/greece-misses-target-on-budget-s...

69 points by Luc 11y ago

I thought George Friedman had some interesting perspectives on the Greece, Germany and the dept crisis. In this video [0], Friedman explains that keeping all countries in the Euro is very important for the German economy (export + welfare state). And it seems the Greece government uses this knowledge in their negotiations with the EU. --- [0] https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545 https://www.youtube.com/watch?v=QeLu_yyz3tc&t=1545

netcan 11y ago
Wow. Fascinating perspective. I had just commented with my own bias/perspective on what the central problem is (I have some background in economics, hence a relatively mature opinion set) and this is another undeniably key piece of the problem, this time from a political economy rather than an institutional perspective. I will definitely follow this guy. Very convincing. thanks
ExpiredLink 11y ago
Greece is 2% of the EU economy ...
- netcan 11y ago
  ..but more than 2% of germany's export market. Also, Greece is a sort of canary for larger countries: Italy, Spain, Portugal, and to an extent, France.
  - eamsen 11y ago
    In 2014, Germany's exports to Greece grossed ~5 billion Euro [1] which is less than 0.5% of Germany's total exports. [1] https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands https://de.wikipedia.org/wiki/Wirtschaft_Deutschlands (for the lack of a better source)
    - netcan 11y ago
      I stand corrected. *edit, does this include interest payments?
- zhte415 11y ago
  Germans have to put their money somewhere. A significant proportion of the Eurobubble / PIGS mess was German savings leading to German banks funding banks in outer Eurozone that in turn funded bubbles and speculation, and the bigger the bubble, the more they received from German banks.
furyg3 11y ago
There are some perspective's that think that having the Greece in a crisis (but not a collapse) is also very useful for countries like Germany because it weakens the Euro which strengthens their exports.

netcan 11y ago

Virtually everyone agrees that a default by Greece is the least desirable outcome for both Greece and its creditors That, I think is a key part of the problem. In the US context it's known as too big to fail and applies to banks. In Europe it's unnamed. The reality of every loan and every indebted entity is that default is a possibility. For a state to essentially become insolvent is no less likely than an individual or company. For some countries it is virtually inevitable on a 10-20 year scale. Before the euro, Greece dealt with this like all other countries, by printing money. They use the cash to pay debts and the resulting inflation actually helps manage national finances, that tend towards inefficiency and overpayment to vendors, employees, etc. If loans are denominated in foreign currency, debtors do not participate in the "haircut" and the danger of inflation notches up a bit. No one thinks this is an ideal system. It's certainly not better than not becoming insolvent, but it usually works. The Eurozone took this away without providing a working alternative. They solved liquidity issues using bailouts, emergency loans and nationalisation of debts and bad assets, but liquidity<>insolvency.

simonh 11y ago
So essentially back when Greece had it's own currency, it could decreate the cost of e.g. it's pension payments by printing more money, decreasing the value of the payments without decreasing the face value of the pyments. They'd pay pensioners the same amount in drachmas, but those drachmas would be worth less. Now they are part of the Euro, the only way to cut the cost of their pension payments is to actualy cut how many Euros they pay to pensioners. For ideological reasons, the Greek government isn't willing to do that. Membership of the Euro is a lens that reveals exactly how many clothes the Emperor is or isn't wearing.
- kokey 11y ago
  Perhaps they need a solution inspired by the Brazilian Real. Pay government salaries and pensions in a different currency, called the 'faux' or something. The value won't change, but how many Euros you can get for 1 faux would depend on supply/demand.
  - 11y ago

danieltillett 11y ago

The Greeks might have a problem with corruption, but they are not stupid. They will find a way through this mess, but I suspect it won't be pretty.

coldcode 11y ago

The complexity of human behavior and the inability to model the real world makes these types of "games" interesting to watch, unless of course it's your money on the line. The illustration of the three-sided chessboard was fascinating.

yk 11y ago
The important thing about the three sided chessboard is, that one or more parties may actually play capture the flag.
netcan 11y ago
It would be fun to play, especially if it was online and anonymous. To win, you need to destroy one player with the aid of a second and remain strong than your ally. Committing pieces to offence would leave you vulnerable, but successful attack could earn you queens.

ExpiredLink 11y ago

> Some are painfully aware of the disaster that awaits Europe if Greece defaults. Others are less aware. Some are utterly unaware. They think it can be contained. Greece's default is as important for the EU as Detroit's default was for the USA. The rest is media burlesque.

throwaway12357 11y ago

What would be the impact on the Euro currency if Greece left the Euro-zone? I would guess the Euro would take a small hit, but bear (speculation) wouldn't have much too feed upon. This due to the fact that (1) Greece is a small part in the Eurozone and (2) the other countries that were having problems (Portugal, Spain, Italy, Ireland) seem to have things stabilized.

zhte415 11y ago
I imagine the effect would be 'is this contagion'? But perhaps a fear of bipolar contagion - will other weaker economies leave (and the Euro become increasing like the Deutschemark - high, stable, low interest rates) or will Germany leave (and the Euro become a currency associated with volatility).

thyrsus 11y ago

Is the current government having any success pursuing tax fraud, which might account for more than half the government's deficit? http://www.economist.com/news/europe/21565657-greek-tax-dodgers-are-being-outed-national-sport-no-more http://www.economist.com/news/europe/21565657-greek-tax-dodg...

LukaAl 11y ago
I found no number to say Yes or No but the past plans was naïve at least on this topic. A big reason for this it is that the constituency of all parties play with tax fraud.

_cipher_ 11y ago

The sad thing in this (politics) is that no one gives a sh!t about real people and real situations besides imaginary currency. Over the last few years, while Greece sinks slowly due to financial situation, IMF and Germany won't back on austerity measures demands. Even if, in reality, those measures are making the country sink even deeper due to very low income and chopping away peoples' pensions. As I live in Greece, I can say for sure that the situation is getting worse and worse over time. While Greece took huge loans over the last few years, almost everything went to fuel German and French banks so they won't collapse. Very little -if anything- was used to help the situation. But not even those same countries acknowledge that fact. They demand "their" money that used to fuel their banks. Smart thing (not). Of course I could be a troll and mention that after WWII Germany received a lot of help to be able to reconstruct the country, even if they slaughtered millions across Europe. But that's politics. ;) Personaly, I'm tired of all that bs. Europe is _not_ a union and this situation is getting out of hand. Supposedly "friendly" countries demanding everything from another member of the "union" is not what Europe was -supposedly- all about. At least with a new government that is able to say the word 'no' for a change, almost anyone can see the true face of European "union".

Retric 11y ago
Even if every Euro of Greece's debt was gone tomorrow the country would still need more money every month than it gets in taxes. That's a long way from Austerity. There unbalanced budget is 100% Greece's fault and has absolutely nothing to do with the EU. Long term the government has three options, collect more taxes, pay fewer benefits, fail. It's obvious which one Greece wants. PS: Actually paying down their debt is another issue and would require Greece to maintain a surplus. Though, if they had that surplus they could just default and probably be better off.
- taki1 11y ago
  Somehow never was true with Iceland. They never repaid and they are just fine. Actually better than fine. I still remember all this fear-mongering coming from mainstream (i.e. the Economist) that the world will come to an end for Iceland if they don't repay. Nothing happened. They are in much better position than Greece. But they said no to EU demands. They said no to IMF demands. They showed big finger to bankers. And that's the lesson for Greece. They should quit Euro (Merkel will never allow because others would follow suit) and debase currency. Do exactly as Iceland did.

venomsnake 11y ago

A greek default is not greek problem but a german one. Let them default. The Greek economy cannot realistically be more harmed. And Greece will still be in the EU with the access to free travel and open market. No harm done.

chrisbennet 11y ago
"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. P. Getty

pdkl95 11y ago

Greece? Hmmm... You borrow at one and buy at ten You use the spread to bury the dead You bank it at four and Repo more Then go knock on the ECB's door If you want a detailed explanation of how that trick worked - the moral hazard trade that European banks took advantage of when the Euro centralized money bu not monetary policy - and how a lot of people are trying to blame sweep that under the rug and get other people ("the poor", mainly) to pay for it by blaming Greece and insisting on dangerous austerity programs, highly recommend Mark Blyth's[1] recent lecture[2]. [1] Prof. econ, Brown University and hilarious lecturer [2] https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=673 (note: #t=673 to skip the unnecessary introduction)

JamesBarney 11y ago

Just to help correct a common misunderstanding that I've seen popup in thus thread. Greece is running a budget surplus. The government is not spending more than it's taking in[0]. [0]http://www.wsj.com/articles/greece-misses-target-on-budget-surplus-1421244654 http://www.wsj.com/articles/greece-misses-target-on-budget-s...