For Stergios Skaperdas

Its not a fun process to have your own government come close to totally defaulting like Greece, and that's not a reason for gloating here, as that's throwing stones in a glass house in the making.

Greece in the end will accept the deal, or it would be a pariah state, and since they don't want to be a pariah state, the deal will eventually go through.

As to why, its not in American interest to have the Euro deal fail, because there is absolutely no way to predict scientifically what a financial dislocation of that magnitude could mean for the international financial system, nor is it in German, Russian, or Chinese interest; it would be a mere gamble on unknowable probability support, which is to say dumb, and if Greece insists on going over that edge, it would be a pariah state, which in the end they won't want, since its lonely when everyone correctly blames you for a disaster.

As why the deal will ultimately go through, for average Greeks, on balance, the deal is in their interest too, if its a painful one, including the wage cuts currently holding up the deal, painful that is, until one really thinks through the implications of the alternatives that are fairly obvious for Greece, if not very predictable interests the international system as a whole, other than that it would create a lot of unneccesary risk.

As for Greece and the interests of average Greeks, beyond not becoming a pariah state, if they don't go through with this deal, no one will want to hold either their debt or their new drachma save at respectively exorbitant interest rates and super low exchange rates.

Thus, the Greeks won't solve their governmental finance problems by defaulting radically more than their current de facto default, since they will face pawn shop interest rates, nor will average Greeks benefit from the price shock that would clearly be the case of leaving the Euro.

If you are as integrated into the Eurozone as is Greece, you might get a bump in tourism from a drachma devalued 90 per cent from the shadow value now, and that's what's likely to happen if the deal doesn't go through, but the offset to the local price level would be a likely hyperinflation, which has the same effect if in an order of magnitude more disorderly fashion as the wage cuts that have caused the holdup in the deal.

Private creditors have taken a 70 per cent haircut already, as have the French and Germans taken a rather large haircut too in terms of governmental assistance to Greece, and the Greeks are going to have to be a part of that too, if the real lesson here is, and should never be used to belittle the Greeks, as we as a species seem to have to have lessons smashed into us over and over again, and so they have in a real way done us a service as to a reminder of certain economic facts of life for the public sector, Washington needs to do a budget deal too.

finis