Greece is trying desperately to convince the EU/IMF/ECB troika to agree to a new round of recovery measures. Their recent decision to authorize a 30% cut of civil servant positions. But they cannot stop the tailspin, and some recondite additional measures will not do anything but further debilitate their moribund economy.
Despite Greece's latest effort, the market is calling for default. Assuming that Greece is bankrupt and staying afloat artificially by a timid and ineffectual European political system, rampant uncertainty is Greece's evil bedmate and is elevating the chance of contagion.
The fog might clear if the EU let the Greek ship sink. This would certainly send a strong and clear message about what happens to countries who struggle with financial discipline. Not letting Greece default could create a moral hazard given that it supports those who shirk their obligations.
Greece has two options: sinking into years of deep recession without falling, or sinking into years of deep recession after falling. Faced with both, the key is to determine what choice will provide the quickest and most lasting recovery. Resizing of the GDP, which will guarantee its collapse and certainty around debt restructuring, gives Greece a chance to bounce back. A more difficult question is whether its collapse could seriously affect the euro. The second option is no good for anyone, including Spain and Italy and Eurocrats responsible for prolonging the Greece crisis.
