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John Nash, Greece and Monday’s talks

Applying easy game theory to ponder what comes next this Monday in the European talks regarding the Greek situation: default and exit from the euro? No default while remaining in the euro? Default and remaining in the euro? At least we can rule out exit from the euro area and no default: I advise my Greek friends to do that immediately, just in case, reimbursing debt with dracmas at a fixed rate.

John Nash, Nobel Prize Winner

I played around with some bi-matrix of the game, which I spare you, and here is what I found.

a)      If Greece sees that it is possible to force a default without being kicked out of Europe (whether Europe would prefer or not that debt is repaid is irrelevant in this case) but still be helped in the face of the hard days ahead, Greece will default. It will be accepted, and we will move on with Greece in the euro, facing the struggles that need to be faced. This obviously implies that the euro countries are committed to help Greece over the next few years with some fresh official money for investments while Greece survives for a few years without international private loans and issues no debt, relying on taxes to spend what needed.

b)      If Europe sees only an advantage for itself from Greece being out of the euro zone (lower spreads?) then the outcome is inevitable: Greek exit and default.

c)       Finally, the (apparently) desired outcome for the Troika: only debt repayment for no exit. While the gain from this for the Troika becomes day by day less relevant since a debt default’s burden is going to be mostly paid by EU taxpayers and not banks, it is still a possibility. The increasing similarity between the Argentinian situation and the Greek one in this case pushes the outcome, indeed, to an Argentinian one: Greece should speed out of the euro area as fast as they can and take advantage of the huge devaluation of the dracma to boost the economy and rebuild the country with the pride of its citizens and additional effective reforms.

So as a European I say: get rid of that debt and help Greece in the euro in the next few years to live without financial markets. It might help boost the heart, brain and soul of our Continent.

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