Hans-Werner Sinn writes: Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B \u2013 the implied threat that drives forward negotiations on Plan A. Greece\u2019s finance minister, Yanis Varoufakis, knows this very well. As the Greek government\u2019s anointed \u201cheavy,\u201d he is working Plan B (a potential exit from the eurozone), while Prime Minister Alexis Tsipras makes himself available for Plan A (an extension on Greece\u2019s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of \u201cgood cop\/bad cop\u201d \u2013 and, so far, to great effect.<\/p>\n
Plan B comprises two key elements. First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece\u2019s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone.<\/p>\n
Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls.<\/p>\n
Other eurozone central banks are forced to create new money to fulfill the payment orders for the Greek citizens, effectively giving the Greek central bank an overdraft credit, as measured by the so-called TARGET liabilities. In January and February, Greece\u2019s TARGET debts increased by almost \u20ac1 billion ($1.1 billion) per day, owing to capital flight by Greek citizens and foreign investors. At the end of April, those debts amounted to \u20ac99 billion.<\/p>\n
A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries \u2013 let alone cause Greeks to lose the assets they have purchased with those accounts. \u00a0A similar situation arises when Greek citizens withdraw cash from their accounts and hoard it in suitcases or take it abroad.<\/p>\n
The ECB bears considerable responsibility for this situation. By failing to produce the two-thirds majority in the ECB Council needed to limit the Greek central bank\u2019s self-serving strategy, it has allowed the creation of more than \u20ac80 billion in emergency liquidity, which exceeds the Greek central bank\u2019s \u20ac41 billion in recoverable assets.<\/p>\n
If the ECB finally removes Greece\u2019s liquidity safety net, the Greek government would be forced to start negotiating seriously, because waiting would no longer do it any good. But, with the stock of money sent abroad and held in cash having already ballooned to 79% of GDP, its position would remain very strong.<\/p>\n
In other words, thanks largely to the ECB, the Greek government would be able to secure a far more favorable outcome \u2013 including increased financial assistance and reduced reform requirements \u2013 than it could have gained at any point in the past.<\/p>\n
Hans-Werner Sinn writes: Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B \u2013 the implied threat that drives forward negotiations on Plan A. Greece\u2019s finance minister, Yanis Varoufakis, … Continue reading ![\"Greek](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/02\/Greek-Debt.jpg\")
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