Greece will achieve economic success when ____.
My inclination is to feel as unable to complete the sentence as I was the similar sentence about peace in the Middle East. Yet Simon Wren-Lewis writes,
To be able to say intelligent stuff about what is going on at the moment (which you would hope an economics education would enable you to do), you need to know quite a lot of economic theory. A lot of macro of course, but quite a bit of finance, and also at least some game theory. . .And if you want to get into all those ‘reforms’ imposed by the Troika, you need a lot of micro.
Pointer from Mark Thoma.
To be fair, Wren-Lewis is saying that knowledge of these topics is necessary in order to offer opinions on Greece. He is not claiming that it is sufficient to finish the sentence.
I just want to emphasize the extent of our ignorance here. Somebody with legitimate training in mainstream economics could easily argue that the best thing for Greece right now would be to get off the Euro. After all, many mainstream economists, perhaps a majority, would say that it was a mistake for Greece to go on the Euro in the first place. Still, there are many other mainstream economists who would argue that it would be better for Greece to remain in the Euro.
As for supply-side reforms, the economic analysis is the easy part. The hard part is dealing with the historical and cultural baggage of the country.
If you forced me to take my best shot at addressing the historical and cultural baggage, I would be inclined to fill in the sentence with “some time after the government runs out of other people’s money.” But there are many economists who would disagree.
In any case, my prediction is that this will not happen soon. Again, I think that the route by which German money gets to the Greek government will be opaque and circuitous for face-saving reasons, but I expect such an outcome. Note: I gather that Tyler Cowen assesses the situation differently. I think we agree that it is possible to claim a symbolic win and take a substantive loss, we just disagree as to which party is most likely to end up doing that.
There are big payments due after June. I think the Troika basically wants to get to that point and see if there is any chance that Greece can actually make those payments. Now, they may, at that point, blink and take a circuitous route to hand the money to Greece to make those payments, but I doubt it now. It may have finally dawned on the Germans that the debt is going to be written off sooner or later. As far as I can tell, no new money is yet promised to the Greek government that it can spend on its own citizens, and I doubt any will be approved between now and June.
Two thoughts:
1. There are live parties with agency acting in an environment of less than complete certainty. Therefore any model’s power of prediction will be poor, and poorer the finer the level of detail in the prediction.
2. It is quite possible for all sides to claim symbolic victory while taking substantive loss, in fact that’s a pretty normal outcome throughout history.