02/04/2015 04:28 pm ET Updated Dec 06, 2017

Syriza Victory: A Glimmer of Hope for Greece?


These past two weeks mark a new start for Greece. The country is now, for the first time since joining the Eurozone, beginning to negotiate a new debt agreement as it rolls back austerity measures.

Greece's recently elected finance minister, Yanis Varoufakis, has a deep track record in game theory economics. Out of the many books he has written, one paper stands out as it closely depicts his government's stance on the Eurozone and the future of the country.

"A Modest Proposal for Resolving the Eurozone Crisis," published in 2013, simplifies the issues facing Greece and its Eurozone partners without diluting them. Varoufakis argues that while Europe is fragmenting, its governing union has been trying to stabilize it by artificially propping up the bond markets and the economies of its core. In doing so, the countries on the periphery (Greece included) are drifting apart.

Nicholas Nassim Taleb, author of The Black Swan, echoes a similar note: "Fixing [this] financial crisis requires a financial system with less debt and less complexity," he said. "Complexity causes fragility," he said. "You're no longer riding a horse -- you're flying a Concorde. A horse doesn't explode but a Concorde can have a problem. We now have a Concorde in our hands."

Since the crisis manifested itself in 2008, its handling by the Eurozone has been a guidebook of how not to deal with systemic crises. The European sovereign debt crisis is a solvency crisis, yet it is systematically being treated as a liquidity crisis. Bankruptcy is usually a result of a liquidity crisis. When it comes to solvency, the issue at stake is an issue of cash flow and not profitability. An institution (country or company) can be be perfectly profitable and become insolvent.

Credit write-downs, as being pushed forward by SYRIZA and Varoufakis, are going to be key to debt sustainability. The current policy of "extend and pretend" is not only dangerous, but could lead to principal losses for the ECB as a part of the Troika.

Further austerity measures in Greece make the debt burden larger in both real terms and in terms of interest payments, crowding out other fiscal expenditures. Government expenditure has grown in Greece only because the debt burden has grown as well. This cycle is likely to perpetuate itself forever if no decisive restructuring of the debt takes place.

George Logothetis, CEO of Libra, puts it perfectly:

The Greek diaspora has constantly appeared to do the impossible and achieve the improbable. Today Greece is a global underdog, an economic David to the Goliath of negative expectations.

But there is opportunity in being David sometimes. We have the possibility to reinvent ourselves, to prove people wrong, to emerge stronger and to affirm our collective culture. Let us not forget that David beat Goliath.