While Greece needs help the German economy has also suffered

While Greece needs help, the German economy has also suffered major recession itself. As an advisor, how would you advise the chancellor: to bail out or kick out Greece? As a German taxpayer, are you willing to pay higher taxes to help Greece? What are your reasons? Give examples.

Solution

In the interests of financial stability of the entire Eurozone, it is advisable that Greece be bailed out, even though Greece joined Eurozone by hiding its then-existing fiscal and monetary problems and overstating its performance criteria, thus inviting the financial crisis upon itself.

If Greece is not bailed-out, there is the danger of Eurozone collapsing, and as a contagion effect, another looming global recession and crisis.

However, as individual tax-payers, I would not be willing to pay more for Greek bail-out. The reason is, I have limited information and oversight about future economic prospects and possibilities, therefore I would take a \"Rational Myopic\" stance by trying to take rational decision with a myopic viewpoint, that is, to maximize by current and short-run net wealth. Paying more now to save Greece and therefore avoiding future potential loss of earnings (from another recession) will be outside by myopic scope of analysis.