Krugman on the "Troika"

[Aimless]

Not looking for a broad discussion on austerity-policies in general, just wondering about the specific claims made in this text re. the policy-changes requested of and implemented by Greece, esp. wrt the projections used.

http://www.nytimes.com/2015/01/26/op...=fb-share&_r=0

[...] To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.

You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. Greece was already in recession when the deal was reached, but the projections assumed that this downturn would end soon — that there would be only a small contraction in 2011, and that by 2012 Greece would be recovering. Unemployment, the projections conceded, would rise substantially, from 9.4 percent in 2009 to almost 15 percent in 2012, but would then begin coming down fairly quickly.

What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. Greece didn’t hit the bottom until 2014, and by that point it had experienced a full-fledged depression, with overall unemployment rising to 28 percent and youth unemployment rising to almost 60 percent. And the recovery now underway, such as it is, is barely visible, offering no prospect of returning to precrisis living standards for the foreseeable future.

What went wrong? I fairly often encounter assertions to the effect that Greece didn’t carry through on its promises, that it failed to deliver the promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. Thanks to repeated further waves of austerity, public spending was cut much more than the original program envisaged, and it’s currently about 20 percent lower than it was in 2010.

Yet Greek debt troubles are if anything worse than before the program started. One reason is that the economic plunge has reduced revenues: The Greek government is collecting a substantially higher share of G.D.P. in taxes than it used to, but G.D.P. has fallen so quickly that the overall tax take is down. Furthermore, the plunge in G.D.P. has caused a key fiscal indicator, the ratio of debt to G.D.P., to keep rising even though debt growth has slowed and Greece received some modest debt relief in 2012.

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Why were the original projections so wildly overoptimistic? As I said, because supposedly hardheaded officials were in reality engaged in fantasy economics. Both the European Commission and the European Central Bank decided to believe in the confidence fairy — that is, to claim that the direct job-destroying effects of spending cuts would be more than made up for by a surge in private-sector optimism. The I.M.F. was more cautious, but it nonetheless grossly underestimated the damage austerity would do.

And here’s the thing: If the troika had been truly realistic, it would have acknowledged that it was demanding the impossible. Two years after the Greek program began, the I.M.F. looked for historical examples where Greek-type programs, attempts to pay down debt through austerity without major debt relief or inflation, had been successful. It didn’t find any.

So now that Mr. Tsipras has won, and won big, European officials would be well advised to skip the lectures calling on him to act responsibly and to go along with their program. The fact is they have no credibility; the program they imposed on Greece never made sense. It had no chance of working. [...]

[RandBlade]

Busy working so not got the time to read it yet, but Krugman is the same muppet who was insisting that the UK's policies were self-defeating and that we needed to cancel our "austerity" - except every single prediction he made about the UK heading for disaster due to cutting out of control spending was confounded by our being the fastest growing major economy globally and putting on more jobs that the rest of Europe combined.

Yet to see a retraction from Krugman for that nonsense. He's devolved into a petty talking head that shouts the same BS regardless of situation, he's pushing his politics not credible economics.

[Aimless]

I think maybe I can hold out for a comment on the matter at hand rather than an automatic response about the character flaws of the source

[Khendraja'aro]

Well, the thing is: Anyone can be an armchair general with 20/20 hindsight. I don't see him providing any solutions which in my mind makes him talking out of his ass.

[Loki]

Krugman is missing a pretty obvious point: the main reason for the mess in Greece is only indirectly related to the bailout. Which is to say that the mess pre-dated the bailout, and the bailout was simply a symptom of how bad the Greek economy was doing. The only way the situation could have been made better (other than changing the last half century of Greek history) would be for the rest of Europe to simply write Greece a half trillion check. You'd have to have a pretty naive view of IR to think that was ever a viable option.

[Enoch the Red]

Krugman is missing a pretty obvious point: the main reason for the mess in Greece is only indirectly related to the bailout. Which is to say that the mess pre-dated the bailout, and the bailout was simply a symptom of how bad the Greek economy was doing. The only way the situation could have been made better (other than changing the last half century of Greek history) would be for the rest of Europe to simply write Greece a half trillion check. You'd have to have a pretty naive view of IR to think that was ever a viable option.

This parallels my thinking pretty closely.

[GGT]

Krugman's commentary isn't meant just for Greece. The same concepts apply to the US. Which "systemically important institutions" needed tax payer bail-outs to prop up their business model, while taking down domestic AND international businesses, AND refused any regulations/consumer protections from government? Banks. And financial entities like Goldman Sachs that got "bank holding status" from the Federal Reserve/Treasury.

The EU will have to forgive and/or re-structure Greece's massive debts. Just as the US did in the post-WWII era for Germany and Japan. We're still trying to do that after the Great Recession, fueled by banks and mortgages, and shareholders, and a burst housing bubble.

[Lewkowski]

Krugman's commentary isn't meant just for Greece. The same concepts apply to the US. Which "systemically important institutions" needed tax payer bail-outs to prop up their business model, while taking down domestic AND international businesses, AND refused any regulations/consumer protections from government? Banks. And financial entities like Goldman Sachs that got "bank holding status" from the Federal Reserve/Treasury.

The EU will have to forgive and/or re-structure Greece's massive debts. Just as the US did in the post-WWII era for Germany and Japan. We're still trying to do that after the Great Recession, fueled by banks and mortgages, and shareholders, and a burst housing bubble.

Oh the EU has to forgive their debts? Why?

[Loki]

Because the Great GGT said so.

[Steely Glint]

My prediction for Greece: Syriza will go to the EU and negotiate a deal where a bunch of stuff is moved around, enough for them to argue reasonable convincingly that their electoral obligations have been fulfilled, yet not so favourable that the EU and the other leaders feel they've actually let Greece off their obligations. Greece will not leave the Euro. Greece's debts will not be forgiven. Nothing much will actually change on the ground. Unemployment will continue to be through the roof. The situation will eventually get somewhat better of it's own accord anyway; the economy will recover a bit, Greece's debts won't have been dealt with but through a combination of repayments and restructuring they'll have been reduced to something a little more manageable. Disaster will be averted, but fundamental issues will never actually be addressed.

[Flixy]

Krugman is missing a pretty obvious point: the main reason for the mess in Greece is only indirectly related to the bailout. Which is to say that the mess pre-dated the bailout, and the bailout was simply a symptom of how bad the Greek economy was doing. The only way the situation could have been made better (other than changing the last half century of Greek history) would be for the rest of Europe to simply write Greece a half trillion check. You'd have to have a pretty naive view of IR to think that was ever a viable option.

Not that I disagree that the bailout is a symptom of the problems in Greece and their economy, but it's a bit simplistic to kill the discussion by saying it's either this or writing a check. The austerity demands could have been different, different reforms pushed, etc., it isn't a binary option.

[Khendraja'aro]

Not that I disagree that the bailout is a symptom of the problems in Greece and their economy, but it's a bit simplistic to kill the discussion by saying it's either this or writing a check. The austerity demands could have been different, different reforms pushed, etc., it isn't a binary option.

Okay, exactly what different reforms would you have demanded?

Keep in mind that the demands basically amounted to:
- Reduce this massive overhead of governmental workers *)
- Reduce corruption
- Actually collect the taxes


*) There's one infamous Greek agency (Kopais) which was supposed to oversee the drainage of a lake. This lake has been drained for more than 50 years now and the department still exists.

[Flixy]

To be honest I don't know enough about the deals or about economy to comment on that with actual substance, I just wanted to say that putting it as a binary option isn't very honest. You could reduce government overhead less, for example.

[Khendraja'aro]

To be honest I don't know enough about the deals or about economy to comment on that with actual substance, I just wanted to say that putting it as a binary option isn't very honest. You could reduce government overhead less, for example.

And what is that supposed to achieve?

[Loki]

Not that I disagree that the bailout is a symptom of the problems in Greece and their economy, but it's a bit simplistic to kill the discussion by saying it's either this or writing a check. The austerity demands could have been different, different reforms pushed, etc., it isn't a binary option.

Which is still missing the point: austerity suggests a deliberate policy choice by a government. There was no austerity. There was simply no money. Britain practiced austerity, which is to say that it could have chosen to spend more money, but didn't. For Greece to spend more money, it would have to get more money from somewhere, and where would that source be? As for Greek reforms, Greece utterly failed to implement most of the main ones. So what difference does that make?

[RandBlade]

Greece didn't simply have austerity, Greece was literally bankrupt. Krugman like a broken clock is looking at the crisis facing each nation (vastly more expenditure than revenues) and giving the same answer: no cuts. Without saying where the money for no cuts is coming from or how the problem will be solved.

Greece had basically two options, negotiate with other nations some form of bailout or they could have declared unilateral bankruptcy, cancelled their debt obligations and spent according to their means. The latter would have meant an immediate withdrawal of euro support so they'd have had to leave the euro and start printing their own currency (lets say the drachma). Even if they launched a new drachma it would have meant major austerity still as they'd be cut out from global financing and the value of the drachma would be pretty worthless so it would have caused major inflation and massive import costs (eg fuel etc). Tourism may have benefited as a silver lining as Greece would be so cheap to visit.

Not exactly a rosy alternative. The reality is that Greece is still pretty bankrupt, but after years of reforms it is now actually running a primary budget surplus and growth has returned meaning debt is starting to come down. A mutually face-saving outline to a solution to the debt problem is already there and would have been enacted almost certainly without Syriza's victory: Restructure the debts to be on a lower rate of interest and a longer repayment schedule. This has already happened in eg Ireland four years ago slashing their interest payments and doubling the repayment period.

This isn't to say mistakes haven't been made. Amongst others, the euro has exacerbated the problem being a straitjacket preventing the monetary policies that Greece required, in order to prevent inflation in Germany (which the Germans have a history of rightly deserved paranoia about) growth-killing deflation has been allowed to set into Greece.

[EyeKhan]

Oh the EU has to forgive their debts? Why?

Because the Great GGT said so.

What is the desired outcome?

Reminds me of Detroit, many people wanted the city to suffer some more for decades of corruption and stupidity, not out of meanness but to be true to their personal ethics & principles. But from a policy perspective, the desired outcome is to reverse Detroit's decline and make it viable economically & socially, improving the quality of life not just for 3/4 million Detroit residents but for the entire region and setting up the conditions for improving the tax base underlying the region's and the state's services. With the bankruptcy and the emergency manager, they managed to bleed off the debt to a manageable level and correct the mismanagement within city government and (hopefully) set the city up for long-term recovery. You can't achieve that by acting on personal principles of 'those people made their bed, now they can sleep in it.'

Seems that if a similar desired outcome exists for the Greece situation, the debt needs to be substantially forgiven in return for real guarantees the lunacy of corruption and mismanagement that led to the crisis has been 'fixed.' I guess that's part of the why answer. The other being that maybe Greece will just default and withdraw from the EU if no reasonable alternative is offered. And maybe the consequence of that is huge, as is feared. Maybe it isn't... The tricky part for Greece is the EU can't install an equivalent to Detroit's emergency manager, so it's hard to get a comfort level that the lunacy will be corrected. But if it COULD be corrected, then why not bleed the debt down to manageable levels?

[Veldan Rath]

What is the desired outcome?

Reminds me of Detroit, many people wanted the city to suffer some more for decades of corruption and stupidity, not out of meanness but to be true to their personal ethics & principles. But from a policy perspective, the desired outcome is to reverse Detroit's decline and make it viable economically & socially, improving the quality of life not just for 3/4 million Detroit residents but for the entire region and setting up the conditions for improving the tax base underlying the region's and the state's services. With the bankruptcy and the emergency manager, they managed to bleed off the debt to a manageable level and correct the mismanagement within city government and (hopefully) set the city up for long-term recovery. You can't achieve that by acting on personal principles of 'those people made their bed, now they can sleep in it.'

Seems that if a similar desired outcome exists for the Greece situation, the debt needs to be substantially forgiven in return for real guarantees the lunacy of corruption and mismanagement that led to the crisis has been 'fixed.' I guess that's part of the why answer. The other being that maybe Greece will just default and withdraw from the EU if no reasonable alternative is offered. And maybe the consequence of that is huge, as is feared. Maybe it isn't... The tricky part for Greece is the EU can't install an equivalent to Detroit's emergency manager, so it's hard to get a comfort level that the lunacy will be corrected. But if it COULD be corrected, then why not bleed the debt down to manageable levels?

It's a fine line though. The worry is that they will never learn from their mistakes, and expect another bailout.

If I recall, the emergency manager for Detroit was being vilified most of the time he was there. What is to prevent the city from sinking back?

[Aimless]

Forgot to add this to the OP: http://www.theguardian.com/business/...harming-greeve

And: http://en.wikipedia.org/wiki/Greek_g..._restructuring

[Loki]

Clearly keeping a country from defaulting on its debts only helps the creditors and not the country itself.

[Aimless]

Clearly keeping a country from defaulting on its debts only helps the creditors and not the country itself.

The text in the wikipedia link is only an excerpt. The original text is here: http://www.economonitor.com/nouriel/...he-lucky-ones/

If you broker a deal where private creditors get 98% of the benefit and Greece gets 2% of the benefit that gets converted to a 50% penalty on the whole country instead because it was too little or just wrong, then did you broker a good deal? I'm with Flixy on this one. Death to binary analyses

[Loki]

The text in the wikipedia link is only an excerpt. The original text is here: http://www.economonitor.com/nouriel/...he-lucky-ones/

If you broker a deal where private creditors get 98% of the benefit and Greece gets 2% of the benefit that gets converted to a 50% penalty on the whole country instead because it was too little or just wrong, then did you broker a good deal? I'm with Flixy on this one. Death to binary analyses

So again, Greece doesn't benefit by avoiding default? Is that seriously your position?

This is your logic: you owe the mafia a million dollars. The mafia will kill you if you don't pay up. Someone comes in and gives the mafia the million dollars on your behalf. Now you feel aggrieved that the mafia got the money instead of the benefactor not only paying off the mafia but also giving you spending cash.

[EyeKhan]

It's a fine line though. The worry is that they will never learn from their mistakes, and expect another bailout.

Certainly.

If I recall, the emergency manager for Detroit was being vilified most of the time he was there. What is to prevent the city from sinking back?

Not really that much, the vilification I mean. At least I didn't see a ton of it in the outlets I get my news from. The current mayor of Detroit's pretty competent and without knowing much of the specifics off the top of my head there are structures in place to prevent the return to the mess that was. Like a working accounting system. There's really a lot of optimism about Detroit these days - something I've never seen before in my lifetime.

[RandBlade]

If you broker a deal where private creditors get 98% of the benefit and Greece gets 2% of the benefit that gets converted to a 50% penalty on the whole country instead because it was too little or just wrong, then did you broker a good deal? I'm with Flixy on this one. Death to binary analyses

Ludicrous ratio, the main beneficiary of the bailout has been Greece.

A more apt analogy is that the Greek economy was riddled with cancer and rather than let the patient die, the bailout (and linked austerity etc) has been akin to chemotherapy. The medicine may be unpleasant but there is no better alternative.

[wiggin]

Krugman is missing a pretty obvious point: the main reason for the mess in Greece is only indirectly related to the bailout. Which is to say that the mess pre-dated the bailout, and the bailout was simply a symptom of how bad the Greek economy was doing. The only way the situation could have been made better (other than changing the last half century of Greek history) would be for the rest of Europe to simply write Greece a half trillion check. You'd have to have a pretty naive view of IR to think that was ever a viable option.

Greece didn't simply have austerity, Greece was literally bankrupt. Krugman like a broken clock is looking at the crisis facing each nation (vastly more expenditure than revenues) and giving the same answer: no cuts. Without saying where the money for no cuts is coming from or how the problem will be solved.

Greece had basically two options, negotiate with other nations some form of bailout or they could have declared unilateral bankruptcy, cancelled their debt obligations and spent according to their means. The latter would have meant an immediate withdrawal of euro support so they'd have had to leave the euro and start printing their own currency (lets say the drachma). Even if they launched a new drachma it would have meant major austerity still as they'd be cut out from global financing and the value of the drachma would be pretty worthless so it would have caused major inflation and massive import costs (eg fuel etc). Tourism may have benefited as a silver lining as Greece would be so cheap to visit.

Not exactly a rosy alternative. The reality is that Greece is still pretty bankrupt, but after years of reforms it is now actually running a primary budget surplus and growth has returned meaning debt is starting to come down. A mutually face-saving outline to a solution to the debt problem is already there and would have been enacted almost certainly without Syriza's victory: Restructure the debts to be on a lower rate of interest and a longer repayment schedule. This has already happened in eg Ireland four years ago slashing their interest payments and doubling the repayment period.

This isn't to say mistakes haven't been made. Amongst others, the euro has exacerbated the problem being a straitjacket preventing the monetary policies that Greece required, in order to prevent inflation in Germany (which the Germans have a history of rightly deserved paranoia about) growth-killing deflation has been allowed to set into Greece.

I don't love Krugman's fairly single-minded approach to this issue, but I think it's a lot more complicated than people are presenting here.

Everyone is right that Greece was in terrible shape as the euro crisis got underway - they had a sclerotic economy, a corrupt and inept government, massive debt and deficits, and a looming growth and unemployment crisis. No matter what policy was enacted, there would indeed have been quite severe pain in Greece.

The blame for this, however, cannot be laid entirely at the feet of the feckless Greeks. While they were happy to borrow far beyond their means (and continue to fund a bloated government on an undersized tax base in a perennially iffy economy), they were enabled to do so by a bond market that assumed an implicit guarantee by the ECB, eurozone regulators who were not willing to take them to task for routinely breaching fiscal regulations, and being locked into a monetary union with wildly dissimilar economies, leading to inappropriate monetary policy. Although Greece is no stranger to debt crises in the past, one could reasonably argue that it would have been better off staying out of the eurozone entirely, which would have mitigated most of these other factors.

So in that context, I have no interest in pointing fingers at the Greeks and lecturing them about fiscal rectitude when the entire eurozone has been one big clusterfuck of monetary and fiscal policy. What mattered at the time of the euro crisis was what could be done then to minimize the damage to both Greece and the rest of the eurozone and prevent future crises. From this perspective, Krugman is partially right - the projections by the IMF and ECB about the impact of austerity, the rescue, etc. were wildly off, and the real result has been far worse for Greece. Notably, the dramatic drop in GDP, far in excess of projections, has caused debt-to-GDP ratios to balloon far more than anticipated, requiring yet further austerity to meet bailout targets for primary budget surpluses and the like. Extending the maturities of the debt and reducing coupons has somewhat suppressed interest payments, yes, but Greece is still in terrible shape, far worse than was expected at the beginning of the bailout.

Yet Krugman is wrong in that this can be squarely blamed on excessive austerity. Although Greece has indeed undergone some painful restructuring, the pace of its reforms has been pathetic. The number of public employees has not been reduced at anywhere near the required rate, nor have public sector wages come down enough. Privatization plans have been repeatedly postponed amid practical and political wrangles. Structural reforms to labor markets, the tax code, and more have been diluted or postponed. Repeated rounds of bailouts have imposed some form of discipline on the Greeks in this regard, but because of the overwhelming urge by the ECB et al to avoid a breakup of the eurozone, they have allowed Greece to repeatedly fudge their way past reform targets. That is the fault of Greece, in failing to seize the opportunity afforded by the crisis to put their own house in order.

That being said, one does have to wonder if a more traditional default and devaluation might have caused less pain to Greece as a whole had they not been a member of the eurozone. While they might not have had as much external pressure to enact reforms, I don't really see them improving things much even now. A devaluation, however, would act as an indirect tax on drachma-denominated holdings, reducing government debt and deficits without having to go after tax evasion directly in such a corrupt country. It also would have dramatically improved the competitiveness of Greek labor and exports. Outright default, no stranger to the Greeks, also would have been unlikely to result in as deep or prolonged of a depression as seen during this bailout induced austerity. Sure, bond markets would then have imposed high interest rates on Greek debt to account for currency and default risk, but that itself would have limited the possible scope of a crisis ahead of time.

The reason this was never seriously considered was because the ECB et al were concerned about bond market contagion jumping to other weak eurozone economies. This was a real concern, though I think now markets have recognized that the issues affecting the rest of the PIIGS were far less dire, and those other economies were much more capable of bouncing back. So maybe it made sense from a pan-eurozone perspective. But from a Greek perspective, this continual grind of bailouts, shrinking GDP, and massive unemployment is probably worse.

Of course, this is not an indictment of austerity in principle. It just means that austerity should be performed when it will actually work, not when you need to chuck out the whole economy and start anew. Austerity, wisely applied, can put fiscal positions back on the right track without undue affects on growth or employment. Though it's quite possible and reasonable to quibble at the scale, timing, or targeting of austerity during this crisis (something I have frequently done), the basic idea is sound - on a medium term time frame, governments need to make sure they live within their means, and austerity is sometimes necessary to counter shocks to growth and spending. Greece, however, was never going to be able to live within its means with the current crop of debt and state of their economy. Locked into a nearly deflating eurozone with monetary policy they can't choose, there is really no good option for them. I expect the troika and Greece to continue to fudge temporary 'fixes' and string along the problem indefinitely, even if this never-ending crisis will be absolutely awful for an entire generation of Greeks. The alternative is to address the fundamental flaws at the heart of the euro project.

[Khendraja'aro]

I highly doubt that they'd have been able to "chuck out the whole economy". The level of corruption alone would have prevented that.

[Hazir]

Okay, exactly what different reforms would you have demanded?

Keep in mind that the demands basically amounted to:
- Reduce this massive overhead of governmental workers *)
- Reduce corruption
- Actually collect the taxes


*) There's one infamous Greek agency (Kopais) which was supposed to oversee the drainage of a lake. This lake has been drained for more than 50 years now and the department still exists.

The massive overhead was reduced reluctantly and too slow.
Corruption has not been effectively tackled.
Taxes are not collected.

If Greece would have done more to privatize (which accidentally also would have reduced the number of civil servants), had been more effective in tax collection (the present minister of finance has said that the tax-office can't be reformed) and would actually have cracked down on corruption on all levels, then probably Greece would have been in a better state. But, like Loki pointed out, that would be trying to undo 50 years of Greek history.

Also, Greece and the USA have very little in common.

[wiggin]

I highly doubt that they'd have been able to "chuck out the whole economy". The level of corruption alone would have prevented that.

By 'chuck out' I obviously meant devaluation and default, which hardly requires a clean government. This is obviously a worse option than austerity for an economy like, say, the UK, but for a place like Greece, it's far better than getting stuck in a deflating or flat currency with freefalling GDP. Neither option is likely to produce much in the way of effective reforms, but one gives the government a hell of a lot more flexibility and increases competitiveness (not to mention probably reducing the overall pain to ordinary Greeks).

[Hazir]

By 'chuck out' I obviously meant devaluation and default, which hardly requires a clean government. This is obviously a worse option than austerity for an economy like, say, the UK, but for a place like Greece, it's far better than getting stuck in a deflating or flat currency with freefalling GDP. Neither option is likely to produce much in the way of effective reforms, but one gives the government a hell of a lot more flexibility and increases competitiveness (not to mention probably reducing the overall pain to ordinary Greeks).

You do realize that Greece is paying 0% interest untill the year 2022 so that any cut of it debts, desireable or not isn't going to have any influence on their economy untill at least then?

What does have an influence on their economy almost directly is that they stopped collecting taxes in the run up to the elections with the very possible effect that they will default on their new private debt through their 3 to 6 month T-bills. If Greece drops out of the euro it's entirely their own fault. They should have had that money, but they most likely won't have it AGAIN. I very much doubt if they were actually running that surplus for the last few months.

[wiggin]

You do realize that Greece is paying 0% interest untill the year 2022 so that any cut of it debts, desireable or not isn't going to have any influence on their economy untill at least then?

What does have an influence on their economy almost directly is that they stopped collecting taxes in the run up to the elections with the very possible effect that they will default on their new private debt through their 3 to 6 month T-bills. If Greece drops out of the euro it's entirely their own fault. They should have had that money, but they most likely won't have it AGAIN. I very much doubt if they were actually running that surplus for the last few months.

Current interest payments on Greek debts are running, I believe, about 3% of GDP a year. That's far less than they should be paying on the open market, given the size of their debt, but it ain't free. Furthermore, even if interest is low, they still have periodic principal repayments or rollovers - they need financing and/or a hefty real surplus (NOT just a primary surplus) to make those payments. Default and devaluation would have been a much better approach years ago at the beginning of the crisis than now, but even now it would benefit - this massive overhang of debt sharply constrains their fiscal options.

I fully agree that the Greek economy is a basket case, and that I have yet to see a truly responsible politician running things there. I have no doubt that current private owners of Greek debt are playing with fire. But the only reason they currently have any access to capital markets (small as it is) is because of an implicit guarantee by the troika that Greece will stay on the straight and narrow. That's an iffy assumption, but there you have it - and as that assumption looks worse and worse with the election of Syriza, we're likely to see Greek bond prices continue to freefall.