Game theory: Why Varoufakis is wrong and there won’t be a deal soon.

Yanis Varoufakis have stated several times that soon there will be an agreement between the EU and Greece about the financing matters. He has based his opinion on the fact that both have more to lose if they don’t reach an agreement.  Mr. Varoufakis has even used game theory to support his opinion.

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My opinion is that he might be missing some details in the big picture. This is not an EU versus Greece, it is more an EU Governments led by traditional parties versus Syriza. And let’s be honest if they let Syriza take their way, those traditional parties will most likely face huge troubles in the next elections. Therefore, there is no way that Germany, Spain or Portugal will be in favor of letting Syriza striking a good deal. I believe that the game theory outcomes might be closer to this:

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Obviously, if the Syriza government perceives the outcome for the Grexit as worse than the Good agreement for EU, then they will most likely reject the Grexit and follow the next best scenario which is the Good agreement for EU. However, I am truly convinced that Syriza won’t be an easy negotiator and if they want to negotiate they’ll have to be serious about having alternatives. On the other hand, there is no way the EU status quo parties will be open to a deal that satisfies the Greeks. So my guess is the deal will take a long time, as is usual in European politics and financial markets will be kept bipolar for long weeks before any significant deal is made. But be aware of one thing: this time the two sides on the table have too much loose if they concede too much… There might be a surprise!

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2 thoughts on “Game theory: Why Varoufakis is wrong and there won’t be a deal soon.

    1. A clear win! But, let me just say that this deal is still a postpone of difficult negotiations for a real deal that will have to take place in 4 months.
      And one detail was confirmed: Paradoxically, Portugal and Spain were the most ferocious opponents of the deal. Clearly, their governments are more worried with the elections than with their people…
      Globally, I think that the Greeks got a great deal and should use the next 4 months to increase their negotiation options.

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