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

Pitsoulis, Athanassios and Schwuchow, Soeren C. (2015): Holding out for a better deal: Brinkmanship in the Greek bailout negotiations.

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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 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 not only at getting a new bailout deal but also at improving its political terms.

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