Brinkmanship is the practice of pushing dangerous events to the brink of disaster in order to achieve the most advantageous outcome. In other words, it is a game of chicken where each player prefers not to yield to the other until the moment of truth. We bring this up because we see this as a game theory tactic at play currently in Greece versus the Eurozone, Russia versus Ukraine, Saudi Arabia versus the rest of oil producing countries, and the Fed versus the market perception of its first interest rate hike.
The best example of brinkmanship currently is between Greece and the Eurozone. Greece has rejected any further loans under its international rescue plan because, as they see it, it doesn’t make sense to continue to receive loans in order to pay the interest on their debt. They want to end austerity and negotiate a new agreement on Greece’s debt. The Eurozone doesn’t want to take a haircut on the existing debt that they hold and they don’t want to renegotiate a new debt deal because it will infuse other anti-austerity parties in the rest of the Eurozone. Interestingly, Greece’s new Finance minister, Yanis Varoufakis, is a theorist on the subject – he wrote a book in 1995, called "Game Theory: A Critical Text". If neither party yields then it could plunge the entire Eurozone into financial chaos. This tactic suggests that an agreement will come at the 11th hour. 
The Eurozone and the U.S. is involved in another exercise of brinkmanship with Russia over Ukraine. The Europeans are very uneasy about the prospect of the U.S. sending "lethal" weapons to Ukraine. This caused Germany’s Angela Merkel and France’s Francois Hollande to make a special trip to Moscow, which turned out to be a five hour meeting. No details were released to media about this meeting. A couple days later, Merkel went to Washington to meet President Obama, which led to another cease fire – essentially the 5th cease fire since the dispute began. Let’s face it, aside from the lives lost, the most to lose in this struggle is Europe’s economies and not the U.S., thus it seems that they have pleaded with the U.S. to not send arms to Ukraine. Russia’s Putin has options – for instance, he could invade one of the Baltic countries to test whether NATO would mobilise. Stay tuned because the game of brinkmanship has not yet ended.
Saudi Arabia is also involved in a brinkmanship exercise with the rest of the oil producing countries over the supply of oil. The Saudi’s have made the decision to not cut oil production, thereby, causing the price of oil to collapse due to the oversupply in the market. This saga will continue to play out until a balance in supply and demand is found through the reduction of supply by either bankruptcy, voluntary output cuts, or through cutbacks by state oil companies.
Greek Shopping List
It only took about four hours for talks between Greece and the European Union to collapse as the two sides met to hammer out an agreement that would allow Greece to continue receiving bailout funds from its Eurozone partners. The two sides remained steadfast in their hardline positions. The EU is insisting that Greece’s new far-left government recommit to the terms that which the previous
government had committed, and the Greek Finance Minister, Yanis Varoufakis, would not agree to the harsh austerity imposed by the bailout package. According to The Wall Street Journal, Greece’s membership in the Eurozone is uncertain and could throw the shaky bloc into turmoil:
"The rupture between Greece and the rest of the euro zone is a question of hard financial figures—but the confrontation has also exposed a deep cultural rift between the two sides.
"The government of Prime Minister Alexis Tsipras and his finance minister Yanis Varoufakis has brought a confrontational style to the rule-bound and clubby meetings of euro-zone finance ministers, not apparent even in the heights of the bloc's financial crisis. It also, according to European officials, appears ready to court serious risks that other bailout recipients have shied away from."
If you’re not keeping track of the Greek demands, they can be broken down into five key items:
1. The Syriza Party’s biggest campaign promise was the creation of 300,000 jobs and a dramatic increase in the monthly minimum wage from €580 to €751. Almost 50% of Greeks under the age of 25 are unemployed as well as the long-term unemployed aged 55 and over. Job creation would focus on these two groups. The four pillars Syriza will use to reboot the Greek economy are: (i) confronting the humanitarian crisis, (ii) restarting the economy and promoting tax justice, (iii) regaining employment, and (iv) transforming the political system to deepen democracy.
2. The shopping item that grabs much of the headlines outside of Greece is the campaign promise to write-off most of Greece’s debt in the amount of €319bn, which is a staggering 175% of total GDP. In addition to the write-off, Syriza also wants (i) repayment of the remaining debt tied to economic growth, (ii) a significant moratorium on debt payments, and (iii) the purchase of Greek sovereign bonds under the ECB’s €60bn monthly QE program.
3. Next, Syriza has promised 300,000 households under the poverty line up to 300kWh of free electricity per month plus food subsidies for the same families that have no income. In addition, they would abolish tax on heating fuel and supply free medical care for those without jobs and health insurance.
4. Established in 2011 as an emergency measure to generate tax revenue, but then made permanent by the previous government, is a very unpopular property tax (called Enfia). Syriza wants to scrap the tax that is effecting most of the middle class and below, but apply a property tax only on luxury homes and large second properties.
5. Finally, it’s no surprise that the Syriza party wishes to establish stronger ties with Russia. Athens has strongly criticized sanctions against Russia that resulted from Moscow’s annexation of Crimea. As Greece flexes its foreign policy muscles, there is no doubt that the Eurozone’s overall foreign policy will have to adjust – the extent of change is yet to be seen.
What do you think will happen to Greece?
Leave us a comment below.
0 comments
Post a Comment