Greece should prepare for Grexit - and then not do it

IN strategic games, threat points determine the outcome. In the negotiations between Greece and its creditors, the threat point was always Grexit. The Greeks could walk out, leaving a hefty bill behind. The creditors could cut the flow of cash. But, of course, threat points must be credible, and the Greeks were not ready for Grexit.

No drachma bank notes were printed, no coins were minted, no bank algorithms were readied and, crucially, no legislation was ready for the redenomination of contracts. On the other side, Germany's Federal Minister of Finance Wolfgang Schäuble had long indicated that Grexit was his preferred option and German Chancellor Angela Merkel started to talk of humanitarian assistance. President of the European Commission Jean-Claude Juncker boldly stated that ring-fencing plans had been worked out. By suspending fresh liquidity assistance, and thus forcing the closure of banks, the European Central Bank gave the Greeks a taste of what Grexit could mean.

The only question was whether the creditors were willing to resort to such an aggressive move. The ferocity of the conditions imposed on Greece has shown that they are, and more.