Is Greece going to set off the long feared next wave of the Great Recession?

Capitulation will occur quickly when money based commerce stops and the Greeks find that no one wants to lend them money.

Capitulation will occur quickly when money based commerce stops and the Greeks find that no one wants to lend them money.

That cant be allowed to happen.

It has long been clear that Greece is a special case in the context of the euro crisis. It is a country in which neither the taxation system nor the land registry system works, a country that is so deeply in debt that no reasonable economist still believes that it can ever repay what it owes. In addition, parties that habitually plundered the state ran the country for years. Then came Syriza, a movement that, at least in its radical quarters, dreamed of toppling the system.

Merkel knew all of this. Nevertheless, she tried to fix the problem with recipes she had used in German domestic politics: delaying, hiding and allowing things to remain vague. There was no lack of cautionary voices. Finance Minister Wolfgang Schäuble has long argued that Greece should be taken on an orderly path out of the euro.

Since then, the chancellor has gone back and forth. Sometimes she is Numbers-Merkel and sometimes she is Europe-Merkel. Numbers-Merkel sees the Grexit as the most reasonable solution. But Europe-Merkel is concerned about being seen as the EU's grave-digger should she let Greece fall. There are decent arguments on both sides, but Merkel never made up her mind. She left things open

Instead, she did what no German chancellor had ever done before. She followed a policy of pedagogical imperialism, with the lesson plan calling for budgetary discipline, labor market reform and privatization. It worked in Spain, Portugal and Ireland, but in Greece, the conditions imposed by creditors were not seen as necessary medicine but as a poison that was destroying society.

Merkel saw what was happening, but she didn't have the courage to face the consequences. And there were alternatives. She could have offered Greece a safe and supported path out of the euro zone. That is the course of action that Finance Minister Wolfgang Schäuble has supported internally for years. She could also have offered Greece a debt haircut. Had she done so at the right moment, she could at least have prevented the radicalization of Greek politics.

The head of the socialist grouping in the European Parliament has called for new negotiations with Greece in a spirit of "solidarity and cooperation" after returns show the "no" side leading in the bailout referendum.

Gianni Pittella says that the socialists would "expect the Greek government to come back to the negotiations with a renewed responsible attitude."

He acknowledged the international lenders would also have to show a new approach.

Pittella said Sunday that "it will also be time for some member states and ministers to stop with unacceptable rigidity, national selfishness and domestic political games."

Le Pen, the leader of the anti-immigration, anti-euro National Front party, said in a statement that the anticipated result was a victory against "the oligarchy of the European Union".

"This 'No' from the Greek people must pave the way for a healthy new approach," said Le Pen.

"European countries should take advantage of this event to gather around the negotiating table, take stock of the failure of the euro and austerity, and organise the dissolution of the single currency system, which is needed to get back to real growth, employment and debt reduction."

A better argument is that the creditors should have had the foresight to know what the austerity they brought upon Greece might wreak. Few democracies could withstand a 25% contraction in GDP over five years, a calamitous growth in unemployment and the humiliation of having endless budgets written by unelected outsiders. Greece’s pre-2008 boom may have been unsustainable and its politicians venal, but that is of no comfort to retirees whose pensions have been slashed or graduates forced abroad to find work. Syriza appealed to voters who had lost all hope. It offered a false prospectus, perhaps a deceitful one. But it was, in part, the creation of the euro zone’s failed policies.

Krugman writes that, "we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded."

Greece was actually starting to show a profit during the last half of 2014 before Syriza came into power and brought the country to its knees.

At least the banking system wasn't collapsing, stores running out of goods, prospective tourists scared to go there, and Greeks abroad having their credit cards declined. Greece had the fastest rate of economic growth in the Eurozone in the 3rd quarter of 2014.

You are so wrong about Merkel