Analyst predicts June 18 Greek exit from the Euro

CNBC reports that Nick Dewhirst, director of a wealth management firm called Integral Asset Management, thinks Greece will get booted out of the Eurozone the day after the upcoming June 17 elections.  The previous Greek elections failed to produce a government, so it’s time to try again… and this time the winners are likely to be populists who want to abrogate Greek “austerity” commitments to the Eurozone.

Dewhirst’s prediction was phrased in interesting terms:

“The euro zone is a club but you get cheaters who get away with it until everyone finds out and at that point you need to remove them otherwise everyone will cheat. It’s better for Greece to leave,” Dewhirst said.

He added that Greek society was built on cheating and scheming, saying “everyone does it” but that voters elsewhere in the euro zone were now calling Greece to account.

“The basic question is that a German has to increase working from 65 to 67 and that is to pay for Greeks retiring at 50. The 17th of June is the perfect opportunity to say either ‘we’ll behave’ or ‘we’ll carry on cheating,'” he said.

He’s not tossing around casual slander by talking about “cheating and scheming” in Greece.  There’s actually an official name for it: the “I Won’t Pay” movement.  They engage in activities such as sabotaging ticket machines and picketing toll booths.  Supporters of the movement openly state they should be able to help themselves to municipal services without paying, because they’ve already given so much to their corrupt government.

When I first wrote about the “I Won’t Pay” crowd last year, I quoted a Greek newspaper columnist named Dionysis Gousetis, who said “the course from initial lawlessness to final wanton irresponsibility is like a spreading cancer.”  It’s about to go terminal.  In addition to the exasperation citizens of other Euro nations feel about financing Greek irresponsibility, as Dewhirst noted, there is the fear that the cancer of cheating might spread to other imperiled economies, like Spain or Portugal.  Why should they honor obligations to Brussels if Greece doesn’t have to?

Coincidentally, the Wall Street Journal published a fascinating article by Professor Dan Ariely of Duke University over the weekend, concerning the psychology of widespread dishonesty and cheating.  Ariely has been studying the topic for a long time, using a “simple little experiment that we call the ‘matrix task.’”  He gives test subjects a set of challenging math problems to solve, and tells them a cash reward will be paid for each correct solution.  When an easy method of cheating is introduced, by allowing the subjects to shred their worksheets and claim their reward on the honor system, “everyone suddenly and miraculously gets a little smarter,” and the average number of correct answers claimed by participants soars by 50 percent.

What’s really interesting about this matrix experiment is the way Ariely found certain variables increased the incidence of cheating, while others did not.  For example, varying the cash award did not increase the amount of dishonesty flowing through the experiment, but making the reward more “distant” by paying in tokens that could later be redeemed for cash did.  In fact, paying off in tokens doubled the amount of cheating, as did introducing a student actor who was very obviously cheating outrageously. 

In all cases, very few people began cheating a lot… but a large number of subjects started to cheat a little.  From this, Ariely concludes that widespread lawlessness and dishonesty represent a failure of introspection, rather than a deliberate calculation of risk versus reward.  In short, people are more likely to cheat when they don’t feel bad about cheating, because they don’t view the activity as morally perilous.  They tend to believe that some degree of moral peril can be abolished through consensus – if everybody is cheating a little, then cheating a little can’t be all that bad.

The professor was able to effectively eliminate cheating from one iteration of his experiment by simply asking the subjects to think about the Ten Commandments.  This technique was even effective with a group of self-professed atheists.

The degeneration of Greece, and perhaps more of the Eurozone, is a massive demonstration of Ariely’s theories.  A population can swiftly convince itself to embrace a growing level of anarchy when it believes the government is hopelessly corrupt.  Contrary to the old Clinton-era chestnut that “character doesn’t matter” when it comes to politicians, setting the highest standard of ethical behavior at the upper reaches of government is essential for inspiring honest behavior among the populace. 

Order is maintained through respect, both for the law and for fellow citizens.  Without such an orderly atmosphere, the confidence necessary for vibrant commerce and investment deteriorates.  In other words, cheaters never prosper.  Hopefully Greece can begin turning itself around after the Euro umbilical cord is severed.  For what it’s worth, Nick Dewhirst doesn’t think a controlled Greek exit will be all that bad – a week of bank systems shutdown, followed by the introduction of a parallel currency that could be swiftly deflated, prompting large-scale foreign investment in Greek goods.

“The best thing would be that they could blame the foreigners,” suggested Dewhirst.  Is that really the “best thing?”  Or will such scapegoating touch off another cascade of lawlessness, erasing the moral hazard of crimes against a purportedly “corrupt” international system?