Surowiecki says the reason Germany is having so much difficulty finding a way to accommodate Greece is that itaEUR(TM)s hung up on the issue of fairness aEUR" as in, "why should thrifty, hard-working Germans pay for the Greeks' wanton ways?" Nothing new there (though I'm one of those curmudgeons who thinks GermanyaEUR(TM)s insistence on tight monetary policy is partly to blame for the mess.) What's interesting is Surowiecki's reference to behavioral economics in explaining GermanyaEUR(TM)s intransigence.
At this point, Germany's political class understands that failure to flat-out guarantee Greece's debts very soon will probably cost them untold grief (and wealth) later on. But as Surowiecki notes, there's solid experimental evidence showing that people are often more than willing to shoot themselves in the feet in pursuit of equity. So viewed from 30,000 feet, the resolution of the crisis now seems to turn on just how much Germans are prepared to sacrifice in terms of future income and political stability to teach those lazy Greeks (and Portuguese and Spaniards and Italians) a proper lesson.
That's where the politics of mortgage relief fits in. For the last four years, Washington has been dancing around the issue of bailouts for homeowners who spent more than they could possibly afford in the sure and certain knowledge that housing prices had nowhere to go but up. While the cost (to taxpayers) of granting what amounts to amnesty to mortgage dodgers would be high, the cost of not bailing them out in terms of lost production, joblessness, and the depreciated value of housing owned by folks who do make their mortgage payments -- is far, far higher. But we all know it's not going to happen.
Economists -- at least the ones not enamored of behavioralism -- are utilitarians by training and sentiment: If a deal can be made that leaves everybody better off, they know in their hearts that it will eventually be made. Just try telling that to European (or American) politicians.