What Game Is Greece Playing?
This post has been viewed 2,395 times.
The repeated willingness of Greece and its creditors to bring the entire euro area to the brink of disaster presents a difficult and fascinating question for economic theorists: What game are they really playing?
On the surface, it seems like a classic game of chicken, in which each side tries to look determined enough to make the other crumble. The creditors, including the European Union, the International Monetary Fund and the European Central Bank, insist that they can’t provide any more debt relief or loosen their austerity demands any further. Greece pushes for more, suggesting that it is willing to default on its debts, possibly triggering an unraveling of the monetary union, if it doesn’t get its way.
It might also be a prisoner’s dilemma, as my Bloomberg colleague Justin Fox suggested back in February. Both sides would be better off if they cooperated, but distrust prevents them from doing so. As a result, the creditors keep demanding terms far too onerous for Greece to meet, and Greece edges toward a disorderly default that would be the most costly outcome for the creditors. This interpretation, though, assumes that the potential gains and losses for both players are roughly symmetrical — a condition that doesn’t necessarily hold here, given the immense downside for Greece.
Read original articleTags:
