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The Psychology of a Crisis: Greece, the Euro and Denial

May 14, 2012

The Acropolis

78% of Greek people want their country to stay in the eurozone, yet they have voted for parties who wish to annul the terms of their economic bailout.  Rejecting the bailout and defaulting might be logical if they decided to return to the drachma and rebuild their economy through competitive devaluation as Iceland has done, but such strong attachment to the euro and a simultaneous rejection of the bailout terms seems at first glance to be logically inconsistent.

I am a psychologist, not an economist, but it seems that these are two contradictory positions simultaneously held in the minds of the suffering Greek people and in the leaders of their new anti-austerity parties. What is happening psychologically to allow intelligent people to hold mutually contradictory positions?

One view might be that they are not in fact contradictory and that the Greeks are playing a very smart poker game, taking a hard negotiating position to force a fragile eurozone to write down even more of their debt and slacken the demands for austerity. But a cardinal rule in negotiation is to understand your opposite number’s point of view and interests, and in doing so keep them in the discussions by ensuring that hope is not snuffed out. The headline of Germany’s influential Der Spiegel magazine  this week – ‘Acropolis, Adieu. Why Greece must leave the Euro’,  suggests that the Greeks have not followed this rule.

Negotiation is also more likely to fail to the extent that each side feels high anger and low compassion for the other, research from Columbia University showed[i]. The photographs of Angela Merkel and Wolfgang Schäuble in Nazi uniforms on the front pages of Greek newspapers, and the German tabloid characterization of the Greeks as feckless spongers suggests that the psychological basis for a  successful conclusion of the negotiations does not exist.

So, if hard-headed, if risky, negotiation strategy does not lie behind the apparent lack of logic in the Greek electorate’s position, what does? The most obvious first answer is desperation and high stress. The Greek people are going through extreme hardship and psychological torment and severe stress triggers excess levels of key chemical messengers in the brain, particularly glutamate and noradrenaline, which if pushed beyond optimal levels interfere with thinking and memory functions. As anyone who has been severely stressed will testify, it is very difficult to think clearly when you are traumatized: this is because the parts of the brain which are most sensitive to excess chemical messengers are the prefrontal cortex – crucial for planning, inhibition and logical thinking –  and the hippocampus, critical for laying down new memories.

Another player in the psychology of the euro crisis is denial. Denial is a fundamental human defense mechanism without which we could not function properly. We go about our everyday lives, mostly oblivious to the fact that we will die – this is thanks to denial, a very useful strategy for stopping us feeling that everything we do is futile against the backcloth of eternity. Some people respond to a cancer diagnosis, for instance, with subtle forms of denial, and for some this can be a psychologically healthy response, provided that it does not prevent them getting the right diagnosis and treatment at the same time.

There are three broad levels of denial. The first is denial of the implications of a threat – for instance you might accept that you have a likely-terminal cancer, but choose to focus your attention on the statistically small chance of a remission. If you use a second type called defensive denial, the threat of cancer penetrates your consciousness, but your mind shies away from it, refusing to engage with the implications, albeit that the reality of the threat lurks broodingly in your consciousness. The final type of denial is the most psychologically unhealthy, that is the denial of the reality. Some patients will simply not hear the fatal words the doctor tells them, perhaps denying that they were said at all.

The Greek voters doubtless – like all of us – are displaying mixtures of all three types of denial, but it seems that the leaders of some of their new parties who have sprung up may be displaying the last and most dangerous of the three types of denial – denial of the reality of the threat. In doing so, they may be luring a desperate population, in whom stress is taxing their ability for critical judgment, into a truly terrible folie-a-millions. 

 


[i] Allred KG et al (1997) Organizational Behavior and Human Decision Processes

Volume 70, Issue 3, June 1997, Pages 175–187.

 

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One Comment leave one →
  1. Steve Thomas permalink
    May 14, 2012 6:57 pm

    There is no logical inconsistency, merely uncertainty. Predictions on the path for Greece after a default range from making an Argentina/Iceland-style rebound to ending up with Zimbabwe-style hyperinflation and collapsing into a Somalia-style failed state. Nobody, not economists, politicians nor the general public knows what the consequences of the choices from here on will be.

    An analogy: a patient has a flesh-eating infection on his hand. One doctor tells him that if the hand is not amputated immediately, the infection will spread and he will die. A second doctor say that with immediate and urgent treatment, the hand can be saved but the therapy will destroy his liver and he’ll need a liver transplant. A third doctor tells him that with a strong course of antibiotics he will make a full recovery. Questions to the patient:
    Q) Do you want your hand amputated? A) No
    Q) Do you want to have a liver transplant? A) No
    Q) Do you want to die? A) No
    Are these positions logically inconsistent? Is the patient suffering from “denial”? Is he just using an aggressive bargaining strategy?

    Besides this rather obvious point, looking at election results from a rational actor, whose-policy-is-best-aligned-to-my-own point of view is futile, because voters almost never really consider policy in making their choices. Voting is tribal and emotional. The Greek population voted for change and reading any more into the precise policies of the parties that gained and lost is not a helpful exercise.

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