Greece Plays Chicken
Source: http://business.blogs.cnn.com/2011/11/01/greece-plays-chicken-with-its-people-and-europe/
The Greek government announced recently that they will put the deficit plan up for a nationwide referendum. This move has endangered the recovery of the Eurozone and increased the likelihood of a default. In a sense, the Greek government has entered into a game of chicken with Europe. The Greek bailout plan was intended to avert disaster, in a sense, the Nash equilibrium of swerving. However, the referendum has put Greece on a collision course with its creditors.
There is no chance that the referendum will pass, as stiff austerity measures are not popular with the Greek citizens. Also, the default of Greece would be catastrophic for the Eurozone and likely much of the world. Greece does not want to swerve and swallow a bitter pill of budget cuts. Greece’s creditors do not want to see a default of Greece, as this would bring them down as well, but also do not want to bail Greece out without assurances that the money will not be wasted.
Imagine this matrix with Greece as Player 1 and Europe as Player 2:
In the end, one side has to move first to avert disaster. In a game of chicken, the Nash Equilibrium is when one side compromises, and thus loses face, but both sides aren’t destroyed. Here, Greece does not want to be forced into further austerity. Greece’s creditors do not want to be forced into bailout without conditions. Something needs to give soon or else further economic stagnation is in our future.