The Greek Crisis is looming over the head of the World Economy and speculations are rife about what the Greeks plan to do now.
The $1.1 billion payment that is looming ahead for Greece by the end of this month is going to be the last nail in the coffin that Greece is in right now. By all measures it seems that Greece does not have the means to make this payment. Link to Bloomberg story on this
The Greek situation is akin to the End Game Effect in Competitive Strategy where in, if a game with finite repetitions is in the last stage of repetitions, the participants are incentivised to actually misbehave knowing that there is no other repetition of the game. As an example you can think of football, where you are allowed 3 yellow cards before a red card. There are more yellow cards in the final minutes of play then in the earlier minutes.
Greece is at the end of its game. If it defaults, it goes out of the Euro and gets a separate currency. The currency would probably crash given the state of the Greek economy and you would see an economic crisis worse than the present austerity in Greece. If Greece decides to make the payments, the level of austerity required is unacceptable to the present government. However, considering the finite chance that the devalued currency would aid the Greek tourism industry, Greece would be incentivized to default (End Game Effect).
Such a situation could be avoided if Greece were to undergo a GM style debt restructuring from 2008. When GM was on the verge of bankruptcy and asked for debt restructuring, the government bought a controlling stake in GM. The US Government sold off its stake for a handsome profit after GM was back in the black a few years later.
Greece could ask for a similar debt restructuring from EU to extend its 30 year loans to 50 year loans and reduce the debt payments. In return, EU could get a controlling stake in Greece through a majority vote in Greek Parliament. This could avoid the End Game Effect that has produced the stale mate in present debt negotiations.
The $1.1 billion payment that is looming ahead for Greece by the end of this month is going to be the last nail in the coffin that Greece is in right now. By all measures it seems that Greece does not have the means to make this payment. Link to Bloomberg story on this
The Greek situation is akin to the End Game Effect in Competitive Strategy where in, if a game with finite repetitions is in the last stage of repetitions, the participants are incentivised to actually misbehave knowing that there is no other repetition of the game. As an example you can think of football, where you are allowed 3 yellow cards before a red card. There are more yellow cards in the final minutes of play then in the earlier minutes.
Greece is at the end of its game. If it defaults, it goes out of the Euro and gets a separate currency. The currency would probably crash given the state of the Greek economy and you would see an economic crisis worse than the present austerity in Greece. If Greece decides to make the payments, the level of austerity required is unacceptable to the present government. However, considering the finite chance that the devalued currency would aid the Greek tourism industry, Greece would be incentivized to default (End Game Effect).
Such a situation could be avoided if Greece were to undergo a GM style debt restructuring from 2008. When GM was on the verge of bankruptcy and asked for debt restructuring, the government bought a controlling stake in GM. The US Government sold off its stake for a handsome profit after GM was back in the black a few years later.
Greece could ask for a similar debt restructuring from EU to extend its 30 year loans to 50 year loans and reduce the debt payments. In return, EU could get a controlling stake in Greece through a majority vote in Greek Parliament. This could avoid the End Game Effect that has produced the stale mate in present debt negotiations.
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