What do a lot of Texas Hold'em and the eurozone crisis? First of all, the number of players, which cannot be greater than six. Just count them: Piigs and Germany complete the table. But for the occasion, an additional place is reserved for the financial markets.
Then there are much more subtle links, halfway between poker and game theory, which may give some indication of how the Eurocrisis will evolve. Grexit o Greuro? The exit of Athens from the monetary union or its permanence in the currency area?
Antonio Guglielmi, analyst at Mediobanca Securities, launches a provocation: at the two extremes another science-fiction one could be added: if Berlin were to leave the table and go back to mark?
A provocation, of course, but useful for delimiting a theoretical-behavioral model that offers tools for indicating the real limits of the Germanic strategy for Europe. The feeling is that Berlin is determined to push on intransigence as long as possible, pulling back and bowing its head to the Piigs just before the ship sinks. But according to some, by then it may be too late to reverse course.
It is therefore necessary to indicate a limit beyond which the German bluff it won't push. Guglielmi measures it in basis points: when the seven-year bund will pay off 145 points more than current levels (1,45% in percentage terms), the bell will ring for Angela Merkel, and a total reversal of the trend will become not only necessary, but convenient.
Cheap not so much in economic terms in the short term, but in cost-opportunity in the medium-long term: if we take for granted that not even Germany would be immune to the collapse of the Eurozone (since Berlin sells 70% of its exports to the Old Continent), the choice to bow its head to the claims of the European region would entail, for the locomotive German, the lesser evil. Suffice it to say that, since the beginning of the crisis, Berlin has committed, to limit the damage of the economic earthquake, approx 600 billion euros. A figure equal to 25% of GDP and perhaps higher than the cost of reunification, estimated in the range of 400-800 billion. The exit of Athens from the eurozone would pulverize the contributions paid and trigger a banking panic, while the extra cost, if, after 17 June, Athens manages to form a pro-euro government, would amount to “only” an additional 50-100 billion.
Obviously, the Hellenic peninsula should be "rewarded" with a easing of austerity measures.
So far, however, i markets they were the greatest ally of Merkel. The flight to safe assets has led to the 0,9% rates on seven-year bund. Because another 147 basis points convince the Teutonic cabinet to change course, the financial markets should start selling Berlin's sovereign bonds, now vastly overvalued. Will they become aware that – ultimately – not even Germany could survive on its own if the euro explodes?
Even a return to the Deutschmark would damage exports, not to mention the dusting of protectionist policies in a collapsing Europe. Until international finance settles the bills in Berlin, the German government will have no incentive to give way to expansionary policies or common support for peripheral finance. Indeed, so far the incentive to reject them increased as tensions over the European border intensified, in parallel with galloping record low yields on the Bund.
The game isn't over yet: the market hasn't gone “All-in” yet. But he could do it soon, unveiling the German bluff.
