Schrodinger's Cat in Athens

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (BBH FX Strategy) - In 1935, Austrian physicist Erwin Schrodinger offered a thought experiment to illustrate a problem in quantum mechanics: Imagine a cat placed in a box with a device that is triggered by a single particle's behavior. If activated, the device kills the cat. But quantum theory holds that a particle's behavior is indeterminate until it is observed. Thus the cat can be considered both alive and dead at the same time until the box is opened.

Does this not capture the essence of Greece?

When the Socialists were swept into power in late 2009, the dire condition of state finances were observed, thereby triggering a debt crisis that remains unresolved at this late date. That said, reports suggest that some European officials knew or should have known the state of Greek finances prior to the election. Perhaps, like Schrodinger's thought experiment, it matters who is observing the cat.

In any event, Greece is on the precipice of failure. The economy is entering its fifth year of contraction. Its economy now is back to the size of five or six years ago, while its debt is significantly higher.

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Unemployment stood at nearly 21% in November (most recent data available) and near 50% for young people. Despite the collapse of domestic demand, Greece ran a current account deficit of 8.6% of GDP in 2011.

The market has long been pricing in a Greek default. The probability is now certain, while the size of the loss to investors continues to rise. Last week, a large Dutch bank reported that it is writing off 80% of its sovereign Greek exposure.

Indeterminate State

However, like Schrodinger's cat before observation, Greece is in an indeterminate state: It is not going to make good on its financial obligations, but it still may not default. This is a product of seeking to avoid the triggering of insurance (credit default swaps) while getting private sector investors (though apparently Greek pension funds as well) to participate in the burden sharing.