Greece. Brutum Fulmen?

The GDP of Greece accounts for a very small percentage of that of the Eurozone. And yet, the magnitude of the reaction that the Greek crisis is inducing in the markets and in the media is certainly out of proportion. The amount of market capitalization that has been lost in the past few days exceeds by far the Greek debt. Why is this so? The disproportionate reaction of the system is, after all, an embarrassing admission of its weakness and fragility. Is Greece the cause of this fragility? Certainly not. With all likelihood, Greece is simply one of the symptoms of a malfunctioning out-of-control system which has been ‘designed’ without taking into account the fundamental properties of its dynamics. One cannot design a system without taking into account its systemic properties! Designing a (complex) system is not about orchestrating the functioning of its components once they have been forced to fit together. If one wants to understand system design and system operation, one should speak to an engineer, not an economist. In a regime of high complexity, turbulence and interdependency, one must resort to new tools, new methods of diagnosis (for example look at resilience not Probability-of-Default) and adopt a new mindset. The World is changing very quickly and we must not be slaves of our old tools.

So, is Europe on the road to recovery? Is Greece, or the so-called ‘Grexit’, if any, going to be a simple ripple, which will dissipate very quickly or will it trigger another crisis? Well, it looks like we already are in the middle of the third crisis since the beginning of the previous decade. The evolution of complexity of the economy of the Eurozone reflects it very eloquently. Growing complexity is a sign of evolution and growth – think for example of Earth’s biosphere. Any loss of complexity, unless deliberately orchestrated like weight loss in a diet, is rarely a good omen and it typically points to a shrinking system, undergoing some sort of deflation.

First, the 2000 internet bubble, then the 2007 crisis, finally a third dip in 2014, hinting a 7-year complexity cycle. Surely, the post-2007 dip was quite severe, taking the economy back at least 10-15 years. The question, however, is, once again: is Greece the cause or is it the dynamics of a complex system that we simply fail to understand?

The evolution of resilience – the capacity to withstand shocks, contagion or destabilizing events – confirms the 7-year cycle but it also shows that the amplitude of oscillation is increasing (=volatility). Evidently, three peaks are insufficient to claim that this is indeed always the case. Cycle or not, resilience values of 50% point to a crippled system which is not well equipped to absorb shocks.

Complexity and resilience are new systemic properties of markets, economies and systems thereof, and offer a more complete reflection of the dynamics of a system than the evolution of GDP, interest rates, unemployment or stock market indices. Is Greece a brutum fulmen? Maybe, but the Eurozone is very fragile and the die is cast.