Another big story from last week is the near collapse of the talks among the finance ministers of Greece and the other countries of the eurozone on dealing with Greece’s debt. The Economist explains just how serious it is:
“THE crisis has commenced,” declared Michael Noonan, Ireland’s normally mild-mannered finance minister, as he left today’s Eurogroup meeting in Brussels. It is hard to disagree. One week ago Greece-watchers were wondering whether Alexis Tsipras’s left-wing government could strike a deal with its creditors in time to unlock the bail-out money it needs to avoid defaulting on a €1.5 billion ($1.7 billion) IMF payment due on June 30th. It is a sign of how quickly matters have deteriorated in the last 24 hours that the IMF bill, which will now surely be missed, is now a sideshow. Instead, after Mr Tsipras unexpectedly called a referendum over the creditors’ latest offer, the question is whether there is still a place for Greece inside the euro zone.
Either someone must blink, i.e. Germany or Greece, or Greece will default on its loans. It’s as simple as that.
If Greece defaults, there will be a scramble to prop up some German, Dutch, and Luxembourger banks and there may be some political backlash as ordinary Germans or Frenchmen realize what the whole contretemps has actually been about.
I don’t think that looking to game theory is a productive way of gaining understanding of the situation. I think that finance and trade theory are better sources of enlightenment.