Greece is melting down. Right now the Eurozone is kicking the can down the road while Greeks die from austerity. The other choice is for Greece to default on its debt, leave the Eurozone, and go their own way, financing their deficit by printing their own currency.
So why don't they do that? Three words: 1) Medicine. 2) Fuel. 3) Food.
Greece is not self-sufficient in any of those. Greece doesn't have overseas assets like Iceland had when Iceland defaulted that can be used to import these items. And they certainly aren't going to be able to buy any of this from the EuroZone, since they just kicked the Eurozone into a new Great Depression due to the collapse of all the banks that are invested in Greek debt.
The only other alternative is to leave the Eurozone but go hat in hand to the IMF for a bailout, where the IMF funds the imports of medicine, fuel, and food. Thing is, the IMF isn't going to do any such thing unless Greece has a government willing to make the hard choices. Pretty much every asset that Greece has needs to be repurposed towards bringing in sufficient foreign currency to pay for the medicine, fuel, and food that Greece needs to survive, which isn't going to leave a lot for the Greek people.
So what's the end game? Well, the German proposal -- lots of dead Greeks due to starvation, exposure, and lack of medicine -- isn't going to pass political muster, the Greeks might as well default at that point since default is going to have the same result. IMF bailout isn't going to happen until the current government collapses and a new government is in place, and given that the Greek police are out of tear gas (and lack the cash to buy more) this might be sooner rather than later unless they resort to live bullets, in which case game over, there will be government officials hanging from street lamp posts shortly thereafter. What it looks like to me is going to be the messy default scenario, where a revolutionary government ends up taking office and imposes a hard-core socialist reallocation of the nation's assets to bring in the foreign exchange needed to keep the country from freezing and starving to death. Eurozone or non-Eurozone? 50-50 chance, my guess though is non-Eurozone. How many Greeks will die for Germany before all of this goes through? I suspect fairly few -- low tens of thousands -- because the government is already teetering on the edge of irrelevancy and collapse so this farce cannot go on for much longer. And then? Well, we'll see. They'll either create a new model for how to handle an economy in a time of depression, or they'll become Somalia North. Either way, Greeks are in for some interesting times...
- Badtux the Economics Penguin