While the economics of the Greek bailout may be sound, political economy realities seem to have been entirely forgotten in the design of the package. Jean-Paul Fitoussi (via the New York times) reminds us of the obvious: Greece is a democracy and the economic policies to not square with political realities. More to the point, Fitoussi said “unfortunately for economists, there is democracy,” Mr. Fitoussi said. “If you impose too strict a program, the population will refuse.”

Our book introduces a parallel example, when England tried to return to the gold standard in the mid 1920s. It is instructive to work out the similarities in the situations that Greece and the UK (then) faced. Maybe the Greek economy survives the austerity measures in the Eurozone, but its government likely won't.