The economics of bluffing
When political leaders turn into option-writers
WILL Greece default on its debts and leave the euro? Will Britain decide to leave the European Union? Politicians in the two countries have threatened, implicitly or explicitly, to take these drastic steps if their European colleagues do not offer them inducements to stay.
Many people regard these threats as a bluff. They think that Greece does not really want to leave the euro, and that David Cameron, Britain’s prime minister, does not want his country to exit the EU. When push comes to shove, Greece will do a deal (see article) and Mr Cameron will persuade British voters to stay in the EU in his planned referendum. But there are risks that neither outcome will turn out as planned. In both cases, political leaders are making a risky bet.
This article appeared in the Finance & economics section of the print edition under the headline "The economics of bluffing"
More from Finance and economics
What campus protesters get wrong about divestment
Will withdrawing money hurt Israel?
Hedge funds make billions as India’s options market goes ballistic
The country’s retail investors are doing less well
Russia’s gas business will never recover from the war in Ukraine
Hopes of a Chinese rescue look increasingly vain