Krugman seems pessimistic on Greece. He may be right. The Eurocrats' behavior towards Syriza suggests that they are preparing a Lehman moment with Greece: make a harsh example of them, but then execute an aggressive and generous bailout for Spain and the others.
http://www.nytimes.com/2015/04/20/opinion/paul-krugman-greece-on-the-brink.html ----------------------snip It has been an endless nightmare, yet Greece’s political establishment, determined to stay within Europe and fearing the consequences of default and exit from the euro, stayed with the program year after year. Finally, the Greek public could take no more. As creditors demanded yet more austerity — on a scale that might well have pushed the economy down <http://krugman.blogs.nytimes.com/2015/02/14/greeces-excess-burden/> by another 8 percent and driven unemployment to 30 percent — the nation voted in Syriza, a genuinely left-wing (as opposed to center-left) coalition, which has vowed to change the nation’s course. Can Greek exit from the euro be avoided? Yes, it can. The irony of Syriza’s victory is that it came just at the point when a workable compromise should be possible. The key point is that exiting the euro would be extremely costly and disruptive in Greece, and would pose huge political and financial risks for the rest of Europe. It’s therefore something to be avoided if there’s a halfway decent alternative. And there is, or should be. By late 2014 Greece had managed to eke out a small “primary” budget surplus, with tax receipts exceeding spending, excluding interest payments. That’s all that creditors can reasonably demand, since you can’t keep squeezing blood from a stone. Meanwhile, all those wage cuts have made Greece competitive on world markets — or would make it competitive if some stability can be restored. The shape of a deal is therefore clear: basically, a standstill on further austerity, with Greece agreeing to make significant but not ever-growing payments to its creditors. Such a deal would set the stage for economic recovery, perhaps slow at the start, but finally offering some hope.But right now that deal doesn’t seem to be coming together. Maybe it’s true, as the creditors say, that the new Greek government is hard to deal with. But what do you expect when parties that have no previous experience in governing take over from a discredited establishment? More important, the creditors are demanding things — big cuts in pensions and public employment — that a newly elected government of the left simply can’t agree to, as opposed to reforms like an improvement in tax enforcement that it can. And the Greeks, as I suggested, are all too ready to see these demands as part of an effort either to bring down their government or to make their country into an example of what will happen to other debtor countries if they balk at harsh austerity.
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