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Holding out for a better deal: Brinkmanship in the Greek bailout negotiations

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  • Pitsoulis, Athanassios
  • Schwuchow, Soeren C.

Abstract

Greece and its creditors concluded negotiations over a third bailout by signing a Memorandum of Understanding on 19 August 2015. The dominant view among most economic policy analysts and commentators seems to be that the actions of the Greek government in the months before the deal had been erratic and lacked coordination. In this paper we argue instead that the decisions of the Greek leaders, including asking the voters to reject the earlier terms demanded by the creditors in a referendum, can be rationally explained by the logic of brinkmanship. We develop a game-theoretic model to show that the actions of the Greek government are consistent with a strategy aimed at getting a better bailout deal.

Suggested Citation

  • Pitsoulis, Athanassios & Schwuchow, Soeren C., 2017. "Holding out for a better deal: Brinkmanship in the Greek bailout negotiations," European Journal of Political Economy, Elsevier, vol. 48(C), pages 40-53.
  • Handle: RePEc:eee:poleco:v:48:y:2017:i:c:p:40-53
    DOI: 10.1016/j.ejpoleco.2016.08.011
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    References listed on IDEAS

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    1. Mark Weisbrot & David Rosnick & Stephan Lefebvre, 2015. "The Greek Economy: Which Way Forward?," CEPR Reports and Issue Briefs 2015-04, Center for Economic and Policy Research (CEPR).
    2. Provopoulos, George A., 2014. "The Greek Economy and Banking System: Recent Developments and the Way Forward," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 240-249.
    3. Fidrmuc, Jan, 2015. "Political economy of fiscal unions," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 147-157.
    4. Mink, Mark & de Haan, Jakob, 2013. "Contagion during the Greek sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 102-113.
    5. Karl Whelan, 2014. "TARGET2 and central bank balance sheets," Economic Policy, CEPR;CES;MSH, vol. 29(77), pages 79-137, January.
    6. repec:eee:joecas:v:10:y:2013:i:1:p:32-37 is not listed on IDEAS
    7. Katsimi, Margarita & Moutos, Thomas, 2010. "EMU and the Greek crisis: The political-economy perspective," European Journal of Political Economy, Elsevier, vol. 26(4), pages 568-576, December.
    8. Samitas, Aristeidis & Tsakalos, Ioannis, 2013. "How can a small country affect the European economy? The Greek contagion phenomenon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 18-32.
    9. Kasimati, Evangelia & Veraros, Nikolaos, 2013. "Should Greece adopt a dual-currency regime to resolve its economic crisis?," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 588-600.
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    Cited by:

    1. Pitsoulis, Athanassios & Schwuchow, Soeren, 2018. "Though this be madness: A game-theoretic perspective on the Brexit negotiations," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181635, Verein für Socialpolitik / German Economic Association.
    2. Niklas Potrafke & Markus Reischmann, 2016. "How to Handle the Crisis in Greece? Empirical Evidence Based on a Survey of Economics Experts," CESifo Working Paper Series 5860, CESifo Group Munich.

    More about this item

    Keywords

    Greek debt crisis; Brinkmanship; Crisis management;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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