Lessons from the Greek crisis

Abstract:

There are two features of the Greek crisis that need explanation: the lopsided outcome where Greece did not achieve any of its stated goals; and the protracted negotiations. I explain these two features as results of two factors: Nested Games (the Greek prime minister was also involved in a game inside his own party); and incomplete information (the Greek government did not understand the weight of unanimity to change the status quo in the EU, and did the best it could to create a unanimity, of all the other countries, against it). The lessons from the crisis are two-sided: for the Greek side not to lose any more time in the application of the agreements (say, with elections); for the EU side to consider different ways of forming and aggregating preferences: having elections (with a wide EU constituency as opposed to national ones), and making decisions (eliminating the unanimity requirement).