Greece-Next Steps; Nothing to Fear
What we need to fear really is fear itself-Roosevelt
While I am sorry for an extended hiatus from my blog due to other very urgent commitments, am glad to return with very encouraging turn of events of a clear Oxi to EU blackmail. The leak and final publication of the IMF report lays low German claims of alleged Greek perfidy. Post the Garibaldi like sacrifice by the ex Finance Minister, the responsibility is now completely in the court of the EU-krats. It is surprising to see that the autocracy is instead trying to turn the screws on Tsipras- the democratically anointed one.
Notwithstanding what the paid media is upto, the economic analysis in black and white is as follows-
Probability Tree diagram of the Next Steps
With only p=19% probability that bondholders woukd suffer an adequate haircut and Greece debt would be restructured suitably, the potential rebound and inflation in the Greek economy is a measly 1%. This includes the scenario of Greek default and drachmafication.
However if the probability of restructuring adequately increases to 50%, the potential rebound would imply inflation at 2.1%.
The response function is illustrated as follows:
Obviously chances for a sustained Greece recovery and preservation of the EU area with or without Grexit improves with a more mature German attitude.
But whatever the outcome, the Greek economy is bound to rebound from hereon unless Greece unwittingly accepts the same type of deal or an unimproved deal from creditors which will be a real blow to all the sacrifices made by the common citizenry.
So the important thing is to get a good restructuring or simply walk out with the drachma.
ageofdeflation 