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Greek Game Theory: "The Risk Of A Negative Outcome Is Higher Than The Market Thinks"
Submitted by Bill O'Grady of Confluence Investment Management (via Valuewalk),
After the Syriza party won 149 of the 300 seats in the Jan. 24th Greek elections, European markets have been roiled by worries over another crisis developing. The party has engaged in some provocative behaviors; its leader and Greece’s new prime minister, Alexis Tsipras, decided that his first official visit would be to a monument that honored Greek citizens who suffered a mass execution at the hands of the Nazis. That symbolism wasn’t lost on anyone. Tsipras, and his new finance minister, Yanis Varoufakis, have indicated that they have no interest in fulfilling the bailout requirements of the European Central Bank (ECB), the European Union (EU) and the International Monetary Fund (IMF), the “troika” that has managed the bailout for Greece.
Austerity has severely harmed Greece’s economy, cutting its GDP by 26% from the pre-crisis peak. The unemployment rate is 26% and youth unemployment is over 50%. The election of Syriza is a reaction against the economic depression that Greece has endured as Syriza ran on an anti-austerity platform.
Of course, one nation’s austerity is another nation’s reform. The German position, which has become the establishment position in Europe,1 is that excessive Greek fiscal spending and borrowing is responsible for the problems in Greece. This excessive spending and borrowing is seen as leading to rampant corruption, gold-plated salaries and benefits for government employees and economic inefficiency. Only reforms, or austerity, can bring Greece any hope of recovery.
The Greek and anti-establishment position is that Germany is the cause of not just Greece’s economic collapse, but the economic crisis in the Eurozone periphery.
This chart shows German exports as a percent of GDP. Prior to reunification, exports generally represented around 23% of German GDP.
Exports rose as the German government changed policy following reunification and have moved steadily higher since the euro was formally introduced in 2000, now representing over 45% of Germany’s GDP.
Germany engaged in policies after reunification that were designed to reduce labor costs, improve productivity and build saving. These policies made the German economy overly dependent on exports that were mostly sold within the Eurozone, which for Germany is a single-currency free trade zone.
In order to sell these exports to the rest of Europe, German banks engaged in a sort of “vendor finance,” where German banks and investors bought the debt from the periphery who then purchased German exports. Of course, this problem was exacerbated by the use of a common currency and the perception among investors that the bonds of individual countries in the Eurozone were, somehow, mutualized. In other words, no country would default because the Eurozone was unified. Thus, borrowing costs fell to northern European levels in the periphery which spurred even more consumption in the southern regions of the Eurozone. Of course, we now know the debts were not mutualized and that the Eurozone has serious unresolved issues.
In this report, we are going to use game theory to describe the situation between Greece and the EU/Germany/ECB. This method shows how misunderstandings can develop and how catastrophic mistakes are made. Using this structure, we will outline the positions and perceptions of both sides and describe how this situation could lead to another crisis. As always, we will finish with market ramifications.
Game Theory
Game Theory was developed after WWII and was used by analysts to predict behaviors between a limited number of players. In economics, it is often used to describe the interplay between firms in an oligopoly. In defense analysis, it was used heavily to create the rules of the road between the U.S. and the U.S.S.R. The concept of “mutually assured destruction,” or MAD, came out of game theory.
The canonical game in Game Theory is Prisoner’s Dilemma. It describes a situation in which two players, acting in a rational fashion, end up with a less than optimal outcome.
Game theorists have created iterative tournaments to observe how players behave in multiple rounds. A number of interesting outcomes have developed; in general, the best strategy is “tit-for-tat,” which is to be quiet until someone rats then always rat with that particular player. They have also noticed that “nice” players tend to congregate with each other and group-punish defectors. In a single play without collusion, we expect the Rat/Rat outcome. In economics, when that outcome isn’t observed, regulators often fear that collusion has occurred which often leads to antitrust violations under U.S. law. At the same time, prisoner’s dilemma undermines the idea that economic actors, operating under conditions of self-interest, will always arrive at the most optimal solution. The prisoner’s dilemma game suggests that under conditions of imperfect competition, a less than optimal outcome is likely if participants follow self-interested behaviors.
Another canonical game is chicken.
If both veer, both suffer some loss of face. If one veers and the other doesn’t, the holding player wins. If both hold, they suffer severe damage.
This game assumes that the losses are symmetric. The MAD concept assumes a game of chicken, in which Veer becomes No Attack and Hold becomes Attack. If both attack, the world ends. If the losses become asymmetric, then one of the players who perceives that his relative loss is less may consider a hold position. That is why, in MAD, treaties were put in place to prevent the creation of missile defense systems for fear it would make one of the parties believe that their losses in an Attack/Attack outcome would be survivable and thus encourage war. As long as both parties believe that complete destruction is the most likely result, neither would attack. In effect, if both players can create rituals that minimize the costs of “loss of face,” a chicken game can be repeated.
Greece, the EU/Germany/ECB and Chicken
We believe that Greece and the Eurozone are effectively engaged in a game of chicken. However, Alexis Tsipras has concluded that the payoffs are more favorable to Greece than those of his predecessors, and so he is willing to risk a financial crisis to get the troika to Veer. The establishment is equally worried that Tsipras has underestimated the dire straits his nation is in and is at risk of triggering a crisis that may lead to Greece’s exit from the Eurozone.
Syriza’s Positions and Issues:
Positions:
- The party believes that the German economy is so dependent upon the Eurozone for its export-driven economy that it cannot risk anything that would lead to a breakup of the single-currency bloc.
- It also believes that the exit of Greece from the Eurozone would set off the exodus of other nations and bring into question the entire European unification project that began in the 1950s with the European Coal and Steel Community. A breakdown of this order would trigger fears that Europe is heading into a period of rising nationalism that was responsible for two world wars in the last century.
- Syriza believes that an ECB cutoff of liquidity from its banking system would trigger bank runs in the periphery nations and trigger a broad banking crisis in the Eurozone. The inability to contain bank runs may have led Chancellor Merkel to bail out Greece in 2012.
- It also believes that the ECB will not take steps which would force Greece out of the Eurozone. To have a non-elected central bank essentially make a major political decision of this magnitude would undermine the concept of a democratic Europe.
Issues:
- Syriza ran on an anti-austerity platform. To agree on extending the current bailout package would seriously undermine the party’s support and might lead to a breakup of the coalition. Syriza is itself a broad mix of radical and center-left members; about one-third of Syriza is controlled by Left Platform, a group of unreconstructed Marxists. Any backtracking would likely lead to this group leaving the coalition and trigger new elections.
- Syriza must deliver on some easing of austerity. Tax receipts fell as it became apparent that Syriza was likely to win as Greeks are expecting a sort of “austerity holiday.” If nothing changes, Syriza will face a nasty domestic backlash.
- Greece will not be eligible for bailout funds if it does not agree to an extension of the current program, which it has vowed not to follow. Although the country could probably scrape by as its fiscal situation has improved due to austerity, its banks need liquidity from the ECB. If the ECB decides not to support the banks without a bailout extension, which the ECB is signaling, bank runs are very likely. Essentially, Greece has until 2/28 to make a deal. Syriza wants the ECB to fund its banks for six months to give it time to negotiate. At this point, it doesn’t look like it will get that buffer.
- Syriza is a party of government newcomers. Nearly all of its members have limited experience in formal governing.
The potential for mistakes are elevated due to the party’s lack of experience. It isn’t obvious how much time the Greek electorate will give Syriza if it can’t restructure the debt quickly.
EU/Germany/ECB Positions and Issues:
Positions:
- The group seems to believe that Greece could exit and contagion would be limited. First, while Greek sovereign yields have increased with Syriza’s election, the yields of other periphery nations have not. This was not the case in 2012. Second, the collapse of Portugal’s second largest bank, Banco Espirito Santo, last August suggests that European regulators can, with the efficiency of the FDIC, close a large bank and quickly contain any damage. This bank, an €80.7 bn institution, was split into a “good” and “bad” bank last August without incident. Policymakers believe that any banking crisis that spreads beyond Greece could be handled as efficiently.
- Germany especially fears that its vision of reform (called austerity elsewhere) would be irreparably harmed if Greece were to receive significant debt relief. The mainstream parties that have embraced reform, like those in Spain, would be seriously hurt if Syriza were successful. When the Popular Party in Spain argued that austerity was the only program available, it put tremendous strain on its economy. However, its leader, Mariano Rajoy, is now calling his country the “Prussia of the South” as the economy begins to lift. If Syriza succeeds in getting a deal, it will call into question why Rajoy subjected Spain to austerity. Simply put, if Merkel doesn’t stop Syriza, the German view of reform will be undermined throughout the Eurozone.
Issues:
- If Greece is given relief, it will foster nationalist parties in Europe which are showing signs of strength. It would also support Chancellor Merkel’s most potent opposition, the AfD Party, which is calling for German exit from the Eurozone. If Germans begin to fear that they will be on the hook for paying the bad debts of other Eurozone nations, the message of AfD will become increasingly attractive.
- Unlike in 2012, nearly all of Greece’s foreign-held sovereign debt is with international organizations, like the IMF, at the ECB or with national central banks. If Greece defaults, it will be the taxpayers who will be on the hook to recapitalize the banks or the ECB will need to print money to cover the losses.
- The ECB does not look inclined to help. Greece has a line of credit with the ECB of €15 bn backed by Greek T-bills; Greece wants to expand to €25 bn by using more of its debt. The ECB has indicated that this won’t happen. Although the ECB is still allowing Emergency Liquidity Assistance (ELA), this source is more expensive and is issued by the National Bank of Greece (ADR) (NYSE:NBG). If a bank fails, Greek taxpayers will be hit for recapitalization. President Draghi used a lot of political capital to implement QE; it seems unlikely that he would expend more to defy the Germans to support Syriza.
The Source of Error
The following payoff table is, in our analysis, Syriza’s perception of the current situation.
Our view is that Syriza believes that caving in to the EU will end its political movement before it really begins. Caving in produces the outcome of -100 in quadrants one and three. Thus, its only positive payoff is to press for restructuring at all costs, while the EU caves (quadrant two outcome). At the same time, we think Tsipras believes that the costs to the EU of caving to Syriza aren’t all that high, but a situation in which both parties hold (quadrant four outcome), which probably entails a Greek exit from the Eurozone, is devastating for the EU. If the Eurozone breaks up, the Pandora Media Inc (NYSE:P)’s Box of European nationalism is released with all the risks that entails. The conditions that led to two world wars will return. And, most importantly, Germany loses its single currency free-trade zone. Thus, we fear that Syriza has concluded that the EU/Germany/ECB has no choice but to cave as long as Syriza holds firm.
The following is our view on the EU/German/ECB payoff table.
From the troika’s perspective, a face-saving outcome in which both parties cave on some matters is the best outcome. They fully expect Syriza to take that option and believe the aggressive comments against extending the current deal or even more “extend and pretend” on debt is just political rhetoric for domestic consumption. Thus, the leaders of the EU keep looking for Syriza to signal a first quadrant outcome. They also believe that a Greek exit won’t be a big deal for the Eurozone but a catastrophe for Greece. Thus a quadrant four outcome should be unthinkable for Greece but not overly costly for the Eurozone. On the other hand, a quadrant two outcome, in which Greece holds and gets its way, while the EU caves, is good for Greece but terrible for the Eurozone. The German reform effort will be over. Populist parties across Europe will use Syriza’s success to rebel against austerity and EU rules. A clear debt write-down would need to be avoided at all costs.
These payoff tables model our view of what the parties are calculating for their decisions. The numbers themselves are for illustration. Essentially, our analysis suggests that there is a large divergence in the perceptions of both sides but the rational choice is to hold to their respective positions. In other words, our analysis of the payoffs suggest that the EU won’t offer debt relief and Syriza won’t back down from demanding it.
Ramifications
Our fear is that the markets, inured by previous bailouts, expect the Greeks to cave. And, that may be the outcome. We view a Greek exit and market crisis as a low probability/high impact event. Such circumstances are difficult for markets to discount adequately because the bad outcome is considered so awful that the markets simply assume it can’t happen. We have tried to show in this report that rational behavior based on misperception can lead to bad outcomes.
We do fear that a Greek exit will have unexpected side effects that are not evident to policymakers. The fact that EU officials seem to believe that Greece can exit the Eurozone with minimal consequences is probably wrong. Even if the Bank of Greece implements capital controls to slow the outflow of deposits, the high level of corruption almost makes it certain that money will still flow out of the banking system, putting it at risk. At the same time, EU policymakers are assuming that contagion will not occur, which may not be accurate.
In general, we remain cautious of European investments at this time. If this situation is resolved in a “peaceful” manner, that caution would be lessened. But, until it is, the risk of an unexpected negative outcome in Europe is probably higher than what is currently being discounted.
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He who repudiates debt first repudiates best.
My bet is that the Greeks can get literally whatever they want, in substance.
Resolutions will simply be poached in terms so as not to cause debt write offs thereby not massively impairing "make believe" capital.
And the world goes on.
Ever more fucked than it was the day prior, ad infinitum
"Essentially, our analysis suggests that there is a large divergence in the perceptions of both sides but the rational choice is to hold to their respective positions. In other words, our analysis of the payoffs suggest that the EU won’t offer debt relief and Syriza won’t back down from demanding it."
For which there is but one outcome.
The Greeks have the only decision amongst the players left to make. Not pay
It is the only "tie breaker" or stalemate resolution assuming both parties adhere to their most favorable position.
Ah, Nash Equilibriums
No mention of the Russian/Chinese wildcard. If Greece can limit its downside by bailing or at least threatening to it changes the outcomes a great deal.
Someone is giving the criminals more credit than they deserve. They are not going to stop counterfeiting themselves money until they are arrested. Soon all chosenites will be multi-Gazillionares ..
no threat whatsoever is being priced into american markets.
You owe us several billion pieces of paper. Monopoly money. Or we will steal your children. We are the chosenites.
Greece? The hell with that. Check out the carnage created by Soros in the Donbas region of the Ukraine.
All 33 videos plus maps to be precise. The Fed/BoE/ECB/Soros war is going to cost Presidente Porky thousands of troops before midnight Saturday night...
02.12 Ukraine-Russia War Update: With the Ceasefire, the Most Intense Fighting Begins (Videos)Bankers can print paper and buy themselves anything and everything they want. With GLD, bankers can print all the Gold they want and buy the entire plate with it. Then where will aliens land their spacecraft. They'll have to pay rent to do that.
Funny how the Bankers are wearing ten thousand dollar suits and the Greeks are wearing Salvation Army specials.
#workwillsetyoufree
They just took over the government a couple of weeks ago. Wait a month and see what they wear then.
In case you have missed it, the Greeks didn't vote in a right-wing and pro-bankster party.
No threat is being priced in because the Fed is buying the S&P and Bonds and whatever else needs
to be propped up to make everything seem honky-dory.
An extra motive for the Russian/Chinese could be to blow up the Euro/Western banking system by pursueding Greece to leave the Euro. A perfect move in a game of global financial chess that is now used by the US against everybody including it own citizens.
Yet for Greece, there's no real advantage. After a GREXIT, Russia will have the upper hand, and they won't do charity. They will be as ruthless as anyone (EU included).
No charity indeed. Yet they may see this as a new market expansion and offer very attractive introductory deals that will be bargains for Greece initially and create buzz in the remaining PIIGS to generate additional interest in the product, allowing for yet more market expansion.
Additionally, I'm thinking that while Putin is pretty willing to ride in wearing what looks like the Black Hat to the West and does have his own deals to make, e.g., various petro developments and perhaps some military interests as well, it is China, his silent partner that has the financial resources for investment in Greece . . . just as they've plowed billions into other areas of interest worldwide. And, of course, there's the BRIC Development bank.
Putin is the front man for the band, but it would be a mistake to ignore who co-writes and produces the music.
"No mention of the Russian/Chinese wildcard. If Greece can limit its
downside by bailing or at least threatening to it changes the outcomes a
great deal."
And ultimately that is where this article fails, though to its credit it lays out the scenero before hand and admits it restricts the chocies to just the two principal parties involved. In reality there are many more players at the table.
How can you pay the interest on a loan if they never even printed that amount of interest in paper?
If I bring back 10 pure bred male polka- dotted Zebras from Jupiter and loan them to you at 10% per year, can you pay me back 11 polka-dotted Zebras? If so, one of your Zebras was counterfeit. The only way any country could pay back it's loans would be to counterfeit. Otherwise you have to borrow the interest, then borrow to pay the interest on the interest. Chosenites are wicked.
We view a Greek exit and market crisis as a low probability/high impact event.
that's why O'bam is prepping for the third attempt at a thousand hour Reich in Irag for the third time in two point five decades, spontaneously gonna happen if the greek goes through the turnstile.
you watch
"When", not "if"...
The only way to 'win' is not to play.
Or amply make your counterfeit so good that it makes their counterfeit look like counterfeit...
Athens has a printing press that prints 'genuine' Euro notes .... Greece could just print 300bn in notes and say ''there you go - debt paid" to the Troika.
You trade a pair of your breeding possums for the exact type of Zebra you need.
Theoretically you could pay back the interest if what you did with the money from the loan increased the money velocity enough.
But it never actually works that way in practice in any of the monetary systems that we've seen. Under the current monetary system, that happening is like somebody building an internal combustion engine that is 90% efficient. It's theoretically possible, but no material known to man could withstand the temperatures needed.
Breed the zebras so that there are now 15. give you your 11. NOw I have 4. This is what happens in business. Money supply is not the same as aggregate value produced.
By doing labor, by creating something, I create value. I can also pledge my future labor and borrow from you if you feel confident that my future labor is worth trusting in. MOney is simply a store of my efforts. By debasing it, the value of my stored labor is diminished.
How much money is Russia losing due to sanctions and the the attack on oil? Add them to the mix and this two player game becomes much more interesting. I have great difficulty imagining a scenario where they don't want to be in this game.
It certainly would be a thing of beauty but I'm not convinced Russia willl make a bold move like that, which would be perceived as being very offensive. I have yet to see Russia do anything on the offense. Up to this point, everything they've done has been only in defense. I mean, the US is responsible for starting a civil war in Ukraine and Russia hasn't really done anything meaningful to this act of war. And the US's crushing their ruble, oil and sp downgrading their debt. I'd love to see Russia step it up and put it fucking to the US.
The US gov't does not represent the people of the US.
The Emperor wears the tattered clothes of debt.
They use hundred dollar bills to insult their attic.
Funny how the Bankers are wearing ten thousand dollar suits and the Greeks are wearing Salvation Army specials.
#workwillsetyoufree
Yeah, and Mao and Stalin both dressed in grey sackcloth but owned their respective countries outright.
Don't fall for the surface impressions. They are only there to deceive.
Well, it'd be nice to think they could just re-define the terminology, write off Greek debt and carry on as usual. The problem with that is the Greek people need to know that the debt was written off or else Syriza gov't is toast for "caving in". So, how do you make it clear to your constituents that they have been looked after but not give the game away to the world? Can't be done.
Also, even ISDA isn't going to be able to polish this turd and call it anything other than a default when the GREXIT occurs. Look for cascading cross defaults in the derivatives market.
"Ah, Nash Equilibriums"
If I owe the bank $300,000 and can't pay I have a problem. If I owe the bank $300 Billion and can't pay, the bank has a problem.
The Greeks have the upper hand here if only they chose to recognize it. The only thing the EU has left to 'lend' is fear itself. While Greece will feel severe pain initially, if the leave the EU the recovery will be rapid compared to what happens to the rest of the EU.
What Greece owes is so small in comparison to the whole EU, that the German banks won't even feel the Grexit, and the ECB can paper it over easily enough. The real problem of a Grexit is the incentive given to Spain, Portugal, and Ireland. If there is a Grexit, the EU must make major changes to its structure.
I understand in principal what you are saying, that contagion is the real issue here. I agree.
But Germany's share of the default will strain the German banking system, requiring some banks to recapitalize. Worse, consider what happens to all those first, second and third tier derivatives that were written on all that Greek bailout debt.
I've notice no EU authority dares even speak on the derivatives subject, let alone poo poo it away.
And don't forget the $200B + Euro Greek bailout default would be covered on a pro-rata basis by all the remaining EU members. Imagine what happens when Spain, Italy and Ireland have to come up several billions each to cover their portion.
Usury is unpayable.
You are preaching to the choir.
Been here long?
Picture a monetary system where a) the currency cannot be debased and b) was not a fractional reserve system, i.e. if you lend money, it is unavaliable to you until it is paid back. Defaults would have to be allowed, if there were lending at interest, it would generally have to be lending for productive purposes and the terms of the loan would have to be long enough for that plus the interest to circulate back to the debtor, and relative values of goods and properties would have to change by necessity if you wanted to have anything resembling a middle class. A house would not be productive, unless it was on a farm or above a shop or somehow tied to production or a business, and thus, houses would have to be valued at a much lower value relative to other goods than they are today because no sane lender would lend large sums of money for something that has no chance of being productive. Lenders who did would find themselves out of business.
The real trick to that is making sure that the money is never debased though. Even AU can be debased by alloying it with cheaper metals.
The real trick to make I-Banks Unlimited Partnerships as in the past so they own the risk capital
What I'm talking about would do that on a harsh scale. No fractional reserve banking plus money that cannot be debased means that lenders have to be very, very careful when lending, else they get shafted.
Germany needs Greece and Spain to hold down the value of the Euro for their export driven economy. If the weak hands dropped out the Euro would double in value and Germany wouldn't be able to export a thing.
Hush hush. No truth speaking allowed.
<Where's that ball gag Yellen was wearing last night? We need it over here stat.>
What I'm wondering about is the over devaluation of the euro. Germany may like the EURUSD at .95 but what will the DXY at 120 do to all those lovely derivatives? I don't know, does anyone?
Love that DXY @ 120.. The wheels would really start falling off the wagons
If there is a Grexit, would you invest in Euros? If not, then what makes you think it is going to go up? If so, how many other countries have to leave before the Euro goes to the inherent value of paper currencies?
You should consider, that with the first Greek bailout the banks have been saved. Now the debt is held almost exclusively at the ECB and IMF. So the constrain on banks would be minimal and the threat potential for Tsipras is less then 2012.
andrewp,
There was an earlier article that detailed the Greek exposure for the various EU countries. Generally the Greek debt responsibility is in the range of 4% of GDP for most of the countries. That includes Portugal, Spain, Italy, et. al. I expect that a complete greek default that wipes that much off of the balance sheet of the other countries would be something that is felt by those banks and economies.
Bingo!
If I owe the bank 300 B and they have a big ass army, I still have a problem.
If I owe the bank 300 B and I have the big ass army, my only problem is keeping the army paid. Fuck the bank.
No EU country has an army capable of actually crossing their own border, let alone carrying out some enforcing action against another country.
And now we know why the Greeks didn't borrow any money from the Americans.
IMF = The Fed = Goldman & JPM & Rothschild & Bros
Epic amounts of cash and hookers are being sent to Syriza party headquarters as we speak. Where are those accounted for in the respective decision tables??
Using GAAP, this should come from petty cash.
Dude, you forgot about the blow!
Too much truthy-ness in this article exposing the scam Germany has been running on the perephery nations.
I think either ECB won't budge and Greece will leave or Greece won't budge and default.
The best outcome is that Germany has to restructure all of Greeces debt in a way that benefits Greeces economic situation and punishes German lenders for being too lax handing out loans to these perephery nations to purchase German products.
Stronger exporting nations in the Eurozone thought they were clever lending money to weaker nations to selfishly boost their GPD at the expense of their supposed Eurozone partners.
Definitely not a sustainable/stable policy for the long term. Now the EU will have to devise a wealth transfer system similar to Japan, Canada, the UK and Australia or let the EU project fall apart.
Back during the tech bubble a lot of vendors self financed clients to buy their shit. Most of those companies went out of business.
How does that saying go again? When you owe the bank 1 million and can't pay them back -- you have a problem.
When you owe the bank 300 billion Euro's and you can't pay them back -- the bank has a problem.
So this isn't going to end well unless Germany smartens up.
Gimme
Your comments here are the least unknown but the truthiest of knowledge out there. Germany has been having a free lunch on the back of having a cheap currency. Even now with this EU crisis & the pressure on the Euro, Audi Porsche BMW MBZ & VW have been having a free lunch shipping the life out of their cars to the US markets. With the USDX / DXY recently hovering around 95 the US Balance of trade is going to go into the sh**ter soon, if the US$ continues with current strength. Well it will eventually become self correcting so Grexits and zee Germans continue to sell the life out of cars to 17 million unit/annum run rate! Nice work if you can get it + a 20% windfall increase on the exchange rate!
There is one big howler that I think has not been mentioned so far tonight that is the $9.2 Trillion of US dollar denominated loans to foreign corporations. Should we get Grexit & the USDX/ DXY go to 120 there's going to more than a few bankruptcies out there to come..
BMW export their X3, X4,X5, X6s FROM the US. It is the focused factory for world sales.
Daimler makes M Class, R Class, GL Class and C Class in Alabama.
Sandmann
You'll probably find that US factories would be on shorter working weeks than Eurozone factories. Makes more money for those companies..
The banking cartels have transfered/sold the debt to Central Banks. Now no losses just an ECB IMF book entry to make it go away. But they can't have that for Italy or Spain as that's a political nightmare for Merkel.
So it's got to hurt Greece as a lesson for the other straglers.
You wait for the big hammers if they don't back down. It will make Cyprus look like a school yard lunch money grab.
The poor socialist sods in Greece are already broke but they will come up with max pain that will make every other nation agree to any ECB terms.
I'm guessing no banks open for 3 months and ATM's run out with no plans to fill em.
The only thing threatening that is the idea of 'non-exit blackmail contagion'. The idea that all you have to do is threaten an exit and you can fuck over the ECB all you want must sound not all that bad to some other Med-shoreline countries . . .
In other words; The fuckee gets the chance to fuck the fucker.
Strapon debt instrument . . . cheap russian oil for lubricant . . .
So funny. ever more fucked.. haahaahhaahahaha
Blah blah blah and more blah. It's all Bullshit!!!
You are correct. Did you ever notice that 99 % of the "people" here on ZH are trolls. You can tell because they never talk about the fact that usury is unpayable. Or the fact that the bankers are simply printing themselves momey and pretending to be "start ups"
Correct, correct, correct. Greece is BK. Yannis points out "pretend and extend will NOT cut it." Change the system, change the deal, because no one is going to be able to pay this. Truth = treason to the userer's(sic).
Greek bonds to IMF and the EU lenders are at rates of 4% or lower. Some have terms out to 40 years. If that is usery then let me get some of it.
greece to troika: I know we owe you 2 blowjobs, give us another one, and we'll owe you 3
greece to troika: I know we owe you 2 blowjobs, give us another one, and we'll owe you 3 1
Fixed it for you. :-)
No no, these are future blowjobs. As in, "free blowjobs tomorrow".
Troika to greece : We know you owe us 2 blowjobs, we will give you another one, and you'll owe us 23
Syriza are alien squatters about to be evicted by the lowest bidder, the leadership has a getaway bag on person at all times.
Crazy, I just watched "A Beautiful Mind" today.
then you know it's all crazy talk
The EU knows the costs of a greek exit. They are just saying it doesn't matter as a bargaining position. Syriza is correct, the EU can't afford it.
They have the money printing press. They can afford anyfucking thing they want.
There will be a compromise. Greeks don't want to risk abandoning the Euro for fear of the unknown and the EU doesn't want Greece to abandon the Euro for fear of the unknown. If I am wrong, it is because someone has some balls.
No doubt that they have no desire to see another fucking euro ever again. Ever. Most Americans would prefer to never see anther " federal reserve" note either. We want our money to read "we the people"
The Icelanders stuck their middle finger in the air to the Eurozone when they came looking for the funds lost by the Icelandic banks. I don't see them suffering now.
There's one other position that's not been discussed that of opportunity cost. Right now its hell in Greece. If the gig continued same as it always was then nothing has changed. Emotionally the Greeks have nothing to lose. Its sh*te over there now & if they go with the Grexit at least there is light at the end of that tunnel.
Except how will they pay for food, medicine, chemicals, etc. from all those German and Swiss companies? You can't eat tourism and treat cancer using olive oil! This is why no country ever wants to be too dependent on trade.
so what bankster play is being run here?
The 'rescheduling play', or the 'protect the public' play, or finagling for the 'guaranteed payment' play? Who's going to guarantee it though?
Ask Ukraine about exiting the EU, they never actually got in and can't leave, think how hard leaving will be for a "part" that is "in" to leave the EU.
When you enter the EU you give up your sovereignty, there is no Greek state or people, just territory of EU.
Gets worse, Germany isn't a country anymore either, there are only German tax donors.
They will print!
And their "earnings" will out pace inflation...
Greeks are playing chicken and will win. Central bankers and politicians will do anything and everything to keep the Ponzi going. This is a drop in the bucket and they don't want the whole thing to come crashing down over this after six years and counting of free money and bail outs for everybody. The Communists running Greece are smart to play this so aggressively.
And that is their Achilles heel.
The central bankers will keep the ponzi going at the expense of the other powerless citizens. The bankers have the entire globe by the balls. Back in '08, it was Paulson saying no bailout = martial law. And, the spineless congress/president gave them sweeping powers to loot the treasury, again. Until people become aware and stop playing, they'll remain in the drivers seat. Here we have Greece, a dying nation, trying to find a way out. The big question is, will the Greeks endure the pain, once the bankers turn off the spigot.
I believe the IMF is holding most of the Greek debt which insulates the Euro. The IMF (a pernicious ) force has mitigated the failout. I hope I am wrong about this ... but it looks as though.
Syriza has to keep up the pressure. There is this volley of headlines going back and forth. Neither side wants to appear weak.
Kabuki theater?
Exactly.
"The Risk Of A Negative Outcome Is Higher Than The Market Thinks"The market thinks the chance for a negative outcome is 0%. I think maybe 1%.
The IMF isn't. It holds some. Try the ECB which has taken on Greek (and other country's bonds) to fund their banks and thus their governments. Also other holdings attributable to Germany and other governments.
I am not sure the author has gamed this correctly. He puts the Hold-Hold scenario differential at 100-to-1. I beleive this asymetry grossly under estimates the impact on the entire Eurozone of a Greek exit. Greece will suffer mightily for 18 to 24 months, but real salutory effects will take place in their economy as the inevitable economic restructuring and repricing take place over time Once other European countries see that there is life after the Euro, they wil be motivate to leave. Germany will be stuck with a very expensive currency that will impact the 45% exports to GDP number very negatively. This imbalance could never never exist in a proper functioning trading block. BMW and Diamler Benz may end up moving factories to Greece after all is said and done.
Or armies could go on the move if there is a Grexit. The Russian Army sets up camp in Greece, and the German army moves south.
I believe the matrix table is only for illustration to explain how the different players percieve the costs or gains. It really has nothing to do with the actual damages or cost or even the real damage vs gains.
But, note that the Greece options in the table are based upon costs and gains for the Syraz Political Party, i.e. holding on to power.
Perconic
You've nailed it. BMW MBZ AUDI VW & Porsche all set up just outside Athens & have great weekends way over the summer to the Greek islands! Everyone wins except Merkel
A compromise is possible. The ECB could replace Greek debt with 30-50 year 1% zero coupon bonds, and allow the same Euro amount for all other EU States as part of its QE program.
The EU could also change the game by moving quickly to full fiscal and political union.
We the people are on to you chosenites and your shell games...
Fucked if you do and fucked if you don't, aka Fuucked.
Listen!
Every CUNT and some has been telling us for YEARS that Germany and the USSA are the BIG I AM'S when the TRUTH is it's ALL BEEN A CHARADE. Deutsche Bank for example has not been put under the microscope, really, and the USSA big 3/4 STINK TO HIGH HEAVEN.
The USSA & Germany are in fact in DEEPER SHIT than ALL the rest ADDED together ( not accounting for China as WHO the fuck knows? ).
Germany's GOODS are sitting piled up high in every sq.m of available space; In fact they can turn off ALL of their machines ( turn those machines back on ) TODAY and still have excess output for 4/5 years.
I'm SNIFFING around for Quality Merchandise at China PRICES for the African and Asian and Middle Eastern MARKETS and so should every other self respecting businessman.
My German Partners have been CRYING in their Wurst and dying a slow death for several years as they STILL SUBSIDIZE Eastern Germany HEAVILY. That was the GAME, the AUSTERITY FOR EVERYONE ELSE IN THE EU was to maintain a UNITED GERMANY.
With the USSA placing sanctions on Russia causing 000's of companies and their economy even more damage ( business is extremely disgruntled with Merkel & Co. ) CHINA CAN AND WILL PULL THE FUCKING RUG FROM UNDER THEIR FEET. Hence Merkel's took a little trip to China with her merry Herren with a begging bowl. Long and short Germany is going to have to cough up their TECHNOLOGICAL EXPERTISE in return.
When Gold spikes the DAX will DIVE for sure.
Greece should HOLD steady as CAPTURED GERMANY along with the Troika & Goldman & JPM & & are SHITTING THEIR PANTS.
Martika - Toy Soldiers (vinyl)
http://www.youtube.com/watch?v=wtmbOquRoSY (5:25)
negative outcomes are in the eye of the derivative beholder
The way this game has been rigged, the negative outcomes in the end will be dumped on the citizens not the beholder of derivatives.
The ultimate heads; banks win, tails; citizens loose situation.
Something very interesting from
John F. Nash Jr's Lecture on
"Ideal Money"
Central Banks as "Pardoners" and as Printers of Money
"A debt pardoner is an agency or authority that can pardon the "sins" of the overindebted or of those who otherwise would go bankrupt. Banks can thus sometimes be saved from failing. The government of a country that issues the locally accepted currency also thus pardons its own "sins." If the euro currency becomes established, then Rome and Paris will no longer be able to play the same roles as pardoners as they have in the past. National pardoners will become ineffective within the area of the euro unless they secede from the euro currency bloc. Instead, pardoning will depend on the actions of a sort of "Holy Roman Emperor" in Frankfurt, which would be able to generally pardon all of the debt-sinners of the euro-money bloc."
The very fact that we're watching this dance is evidence that the EU is on its last legs. Putting out brush fires means the fire is no longer contained. Every other nation is watching this, not just Spain and Portugal. Credibility slipping away with each day, confidence being lost.
Shouldn't Greece be talking to Iceland , to get their blueprints ??
Buckaroo is right, but the example is limited. The game theory, A theory yet, is flawed as everything is static, there are not variables counted, as well as unintended consequences. The real world does not work that way, and those who make decisions base on game theory always see it go where it is not intended to, and the wheels come off. This is totally arrogantly thinking.
Some of the given assumptions are rather socialistic and it seems that this is all weighted their way. That is why the Greeks do not play their games. EU is corrupt and evil, as is the ECB, and Christine. The statement that indicated that the withdrawl of Greece from the EU is unthinkable for Greece, probably not if they are set up with Russia and China. Time will tell.
This is academically interesting but totally irrelevant. Greece can not repay. The elected government knows and admits this fact to the public. Either the debt is very significantly reduced or it will be nullified in a GREXIT. I reject that the EU administrators believe a GREXIT comes without terrible consequences. They know that very well because Podemos and Cinque Estrelle are already preparing to replicate Syriza's maneouvre. The likelyhood of the EU giving way to Syriza is 90% because of this. Than there is the Greek veto over the sanctions against Russia. That adds another 9%. No game theory needed to arrive at 99%.
I just lurv the way Hollande is talking up Putin's efforts to bring about stability in the Ukraine. With France in deep shit ( along with most others ) he desperately needs to offload those two Mistral Helicopter carriers; AND RIGHTLY SO.
No fucking way would i go along with insolvent USSA's sanctions and breach a CONTRACT signed years before.
If Putin tried to renege on oil/gas shipment contracts you would never hear the fucking end of it on MSM.
Grow a pair and tell McStain & Vichy DC to FUCK OFF.
The risk of a negative outcome is higher than the market thinks...
I can't speak for the whole market, but I think that the risk is 100% on a negative outcome. The real question is who gets stuck with the lion's share of the stinky shit because it's going to be bad for someone, no matter how it plays out.
Hi sweetheart have you forgiven me for all them rotten names i called you the other day? Opposites attract you know and are also known to have heart-pounding sex. Aw shucks go on, you know you want too.
Say something derogatory about Putin and I'll forgive you.
Oh, and do something about your breath.
Promise i'll use some extra strong mints prior to the 69 sweetness.
On the former i can't 'cause i know deep down and so do you that Putin is the ONLY MAN standing between us and SERVITUDE.
Just think how many more Aaron Swartz's and whistleblower's and FEMA CAMPS and disappearances and drones and blackmail's and murders etc etc that the BANKSTERS & Captured Politicians and Courts would BESTOW upon us.
Too bad, so sad, weakling. A real man doesn't hide behind some foreign midget when its fightin time. Stand up for yourself. Die free and alone, if you must, but stake your claim without reference to someone you hope will come save you.
You helped make this mess. Shovels and brooms are over there in the corner.
No tarabel i look at Barry and i think to myself (no , not what a wonderful world ) MLK must be turning in his grave.
I'd love the opportunity of a one on one like a lot of folks on here and furthermore if your in need of a few bob to get yourself away from the Dark Side, you only have to ask.
That's very kind of you but I'll stick with the old flag and hope for better days.
My people stood on Plymouth Rock, fought for the Continent and the Union, stuck it to the Kaiser, the Fuhrer, the Emperor and the Politburo and now the job of defending and redeeming the Constitution is in my very incompetent hands while my ancestors look down on me and frown. If I let them down, it won't be because I wasn't true to their cause.
Here's to better days for all...
whew i was afraid youd sell out for some cheap NeoCON hooker...
Who you calling cheap, Elvira?
sorry, skanky should make you happy, "Barbi"
That's much better. And I really prefer whore to hooker since that's what I have on my business cards. It can get confusing, if you know what I mean. People call me up and ask for the Hooker of Babylon and I end up giving them my girlfriend's number when they actually wanted a date with me.
Love your hair, btw. but I think a little less eye liner would really brighten up your look and generate better results on Saturday, if you know what I mean.
Gotta run. TTFN.
Thanks for the vote of confidence Dread.
@ tarabel
Anyway you could easily be a man but you know what, i may come across as this dumb coarse foul mouthed lump on occasion but NO AMOUNT OF MONEY could tempt me to hurt you or your loved ones as i'd end up 100 times more delirious than Raskolnikov.
Namaste, Vern.
The day is coming when we'll all have to pick a flag. I wish we could all choose the same one, but that's not how they divvy up the teams. We go where our hearts take us.
That's exactly the issue, sometimes i have to sit down at the same table with these public servants ( ha ha ) who'd sell their mother to get a step up the ladder and therefore have no 'heart'.
Do not conflate the actions of an immoral, out-of-control government here or anywhere else with the cause of the Union itself.
Sure they're (insert plural of a derogatory term of choice here) !!!! But they are not America. Instead, they are a foreign philosophical cancer that has invaded the body politic of the Great Republic.
For a time they shall rule, but that time grows short and the altar of Freedom shall be restored.
http://www.propheticroundtable.org/vision_of_george_washington.htm
"The whole world united shall not prevail against her."
http://z3news.com/w/george-washingtons-prophecy-invasion-america/
The fundamental flaw in this analysis is the belief Greece will suffer a net negative result if both sides hold. WRONG.
If both hold, Greece defaults and exits the EZ. That will relieve it of several hundred billion euro in debt and make it far more competitive for tourism and some other exports. There will be some transition pain but overall Greece will actually be better off. It will probably even be able to raise new debt if necessary, perhaps requiring collateral, once it no longer has an obligation to repay existing debt.
The author is making the same mistake as the EZ, assuming hold leads to a worse outcome for Greece than the current disastrous situation. It does not. Hold gives it a better outcome whatever the EZ does.
Conversely, caving has a really bad outcome for the EZ whatever Greece does because of the flowon effects to other PIIGS. The only hope for the EZ is that it can cave but so disguise the situation that no one else realises what has happened. Good luck with that, but out of desperation and groupthink they may persuade themselves it can be done.
I'll have a gyro, please...
No mention of an Iceland type ending. Why would Greece be different from Iceland if they defaulted.
Exactly. No mention of Russia. No mention of the rental income from a Russian Naval Base in Greece. No mention of a very unhappy Uncle Sam.
How do the ECB expect to be paid back with more bailouts if they cause the economy to decline?
ICELAND
You can smell that the Troika has blinked. They need more time to construct exits for the next rebel and nw have too much to lose. It is now down to how much bragins that they can extract.
Greek FM is sitting pretty. Any small concessions below his demands is a political Win. A temporary win-win is to give haircuts to be phased out in order for markets to breathe and move on.
Greek FM is well aware of first mover advantage. No more such opportunities when the Troika reconfigure and plan for such future exigencies.
Bet that the markets will hold with no big declines. Markets are sentiments for the day. Long term is another matter dependent on yet some other "flavor of the moment".
duplicate
duplicate
LMAO that the hit to the EU/GE/ECB side is -10 on a Hold/Hold outcome. Greece may experience -100, the EU/GE/ECB would at least equal this pain if not more.
Varoufakis probably knows more Genertal Equilibrium than the author. The German situation is suppression of real wages to fund exports in a common currency with corporate lending to fund exports and thereby buy profits.
The ordinary German who would have enjoyed higher real wages as the D-Mark appreciated against Drachma and Franc and Peseta now has no gains as inflated prices in those zones are reflected in his Euro priced foodstuffs. Germany has the most competitive food retailing sector which is why there is no great range of fish but mainly cheap pollock and pangasius......they cannot compensate high raw material prices for fish with retail pricing.
The demographics of Germany make electricals retailing hard work and margins very thin. Germany is over-retailed and sales per square foot must look dire. There are lots of empty factories and shops in Germany as production moves to German plants in Romania or Slovakia or Turkey or Poland or Asia. Thus production wages are lost to Germany and exports booked through Germany are probably recorded in HQ but invoiced through Dublin for tax reasons.......so lower wages, lower payroll taxes, lower corporate taxes......and German infrastructure decays and price levels rise only through taxes and levies from the government.
Germany is heading for meltdown. Look at how far Services dominate major cities - lawyers, tax accountants, and how many SMEs run on tickover to pay for lifestyle rather than expand; and how the banks are recalling loans.
The picture is far from rosy, it is a rare period in German history when things run smoothly - it ceased in 1970s with Baader-Meinhof - and thereafter basically tagged onto US economic policy riding the UK/US Debt Cycle to export before Club Med succumbed to Banker Deep Discounting of Teaser Debt
The one I love the best is the Irish Michael Noonan whose country has been sucking at the teats of Google & Apple sucking only 12% corporation tax as opposed to 30+% if they were domestically located. Sitting in Dublin the Irish have suggested that they are fiscal prudence, I say BS, they are better at sucking teats than Greeks, that's all.
game theory is just that theory, pick your assumptions, play your game.
if game theory is what the ussa is using to formulate their foreign policy, one can see the results
what ever became of common sense? f*ck your game theory.
My bet is on the Amoeba.
I disagree.
Greek position: 'hey, maybe we can get away with not paying a cent of our debt'
Greek Issues: 'how do we make it look like we had no choice and it's the eurogroups fault'
Eurogrouop position: 'giving money, cutting debt, giving money, cutting debt. Why don't we just let them fuck us in the ass'
Eurogroup issues: 'Oh man, having to redistribute 300 billion of Greek debt to our other members is going to kill us'
FIAT is a GAME.
DEFAULT is LIFE.
Really sad to see this presented as a worthy pursuit of ivy league college education. It's simple schoolyard negotiation. A step up from rock, paper, scissors, yes. We can do better than glorifying assumptions and experiential negotiation preparation to being science.
discovered yesterday the greek finmin literally wrote the book on game theory in 2001.
http://yanisvaroufakis.eu/books/game-theory-a-critical-text/
had to laugh when I saw this all knowing headline on the front page of an irish broadsheet the other day
"Deal on Greek debt will not benefit Ireland, say EU ministers"
http://www.irishtimes.com/news/politics/deal-on-greek-debt-will-not-bene...
a clue as to what the EU will do
This game theory model is now secondary as the meeting of 12 Feb has established the following :
1° There will be no Grexit : 90% probability. This is a Political decision and Mutti has backed it up PROVIDED Syriza makes some concessions about keeping SOME of the engagements made by the previous government in its new "shopping list".
This is the base plank for the negotiations of this Week End, which should lead to a technical agreement on Monday.
On this issue Syriza has made a concession to Mutti : its moves back from its initial position of saying : technicalities cannot be separated from the political angle; aka its a global deal or its NO DEAL.
That mindset of all or nothing is now not "de jour" during this week-end scramble to a compromise solution.
So what is the new shopping list that Syriza has to accept/modify ?
a) Syriza says it will look at the privatisation program again. It will formulate its demand for minimal wages, for new state civil servant recruitment in its budget and ALSO how to increase its tax revenues from those who are tax dodging today. The OECD which is now formulating a tax dodging mandate for all its members -- (after the HSBC and Tax inversion scandals in first world shaking the UK political system to its roots)-- will contribute to verify the possible and realistic increase that Greece's governments could obtain to balance expenditures to receipts; having a positive or balanced government budget is MANDATORY for Mutti and ECB.
b) ECB/EU/IMF will look into debt can kicking and government bond buying to alleviate the debt servicing profile over a longer period. The notion of troika is verboten. Only the EU (Mutti) and ECB have official inputs. IMF is surrogate to this power play. Syriza does not want even a mention of IMF in the official deal.
c) EU has also a commitment to launch an infrastructure project based on accompanying new QE and to help small enterprise start ups all over the EU area which should also kick start the moribund Greek economy once the bank conundrum is resolved.
Basically in hard debt terms it means that Greek debt will be targeted to be shaved of 50% nominal value; aka 165 billion; one way or the other; as if the terms are stretched out and interest rates are blocked in to reflect current deflationary conditions it will mean the PRESENT value of future payments of principal and interest will be much reduced.
What collateral outcome this has on other Club MEd countries is the canary in the coal mine that NOBODY wants to address today BUT THAT EVERYONE FEARS for tomorrow !
Keep in mind that the current EU leadership and Mutti FEAR MOST a rise of nationalistic euroskeptic parties in the upcoming elections for the next two years. So Bringing Syriza on board the EU ship is critical for EU/Euro survival. Bottom Line of current EU leadership thinking! (Think Spain, Italy and UK).
Lets see which line of thinking prevails : the 90% of compromise or the 10% of Grexit.
I view the Grexit as inevitable. The new Greek leadership has been pretty clear that they are done with the externally enforced austerity. Any extend and pretend just keeps that in place and the Greeks still don't have enough money to pay their debt and reduce austerity. It seems to me that their only out is to default and use the money that had been going to service the debt to reduce austerity. It is more like a zero sum game - it's all or nothing. And the Greeks have the trump card. They either get a huge reduction in their debt or they walk. The Troika can't agree to a haircut or the next domino (Portugal) will fall, and then the next (Spain) and the next (Italy) and the next (France). It is what it is...
The EU underestimates contagion as much as the Greeks underestimate what it will be like to crawl out of that well with a Drachma.
If Greece defaults and goes its own way, the other PIIGS may also follow suit. But they would wait a while to see if Greece survives the ordeal before jumping off the EU-Titanic themselves.
If Greece did survive and showed signs of recovery, the others would also jump ship PDQ and the EU is dead in the water. The last EU Memo sent to all apparatchiks:
Somebody needs to read more John Nash.
I'm with Panos: https://www.youtube.com/watch?v=Zvl9N9GdraQ
Yanis Varoufakis, the new Finance Minister of Greece, has a very interesting view of how the current global economic problems developed and why they continue to get worse instead of better.
He calls it "The Global Minotaur"
http://www.globaldeflationnews.com/the-global-minotaur-a-global-finance-...
This is a great article about what’s at stake in the Greek government’s demands for debt relief. It shows why the Greek situation has ramifications for the world economy and for society more generally. Undermining governments that have implemented belt tightening would leave the European Union in much worse shape for the future. Nationalism and communism could come to dominate other EU member states wrecking the union’s very foundation.
Still, not granting debt relief is a sure way to send Greece to the EU exit door. Like Lincoln’s dilemma before the Civil War (he couldn’t concede to the South’s demand to let them remain slave states, and he knew the South couldn’t give up the basis for its economy and way of life), the EU is dammed if it does and dammed if it doesn’t. This makes a breakup seem inevitable.
Nevertheless, there were last-minute negotiations and possible compromises could have saved the American union without war. And today, there are possibilities between Syriza’s debt-relief demands and the troika’s hard line. No, I’m not saying it would be easy. In fact, while I would cheer any face-saving settlement agreement, I still wonder if Greece will follow Argentina’s example: it went from default to default until the cost of bailout became too onerous for the creditors and capital dried up.
All of this shows that we do need something like bankruptcy proceedings for nations, too. We need some legal forum for debt relief just like individuals and corporations have under Western law. We have eliminated debtor’s prison, and we will allow Radio Shack to reorganize in a less catastrophic way than the market itself would. Why can’t we find an internationally sanctioned way to ease the pain of bankrupt nations? Yes, it would compromise the political power of busted nations, but maybe that would help keep them on the straight and narrow. What do you think? As bad as international courts are, wouldn’t a bankruptcy proceeding be preferable to this?
The game theory angle is wrong, because there is a clear outcome that's beneficial for Greece that they can decide themselves (default with EU, new agreement with Russia/China), and no beneficial outcome to EU that EU could influence, ie force Greece to stick to its agreements. Kicking the can down the road is not an option, there is no political will to do that if there is no possible trust that the situation could improve, and the Greeks went out of their way to leave that impression.