Game theorists and bargaining strategists know they must think through Plan B because it is the threat on which the bargaining for Plan A depends.
In Greece, Finance Minister Yanis Varoufakis, an expert on game theory, is the hatchet man working on Plan B while Prime Minister Alexis Tsipras advocates for Plan A. Role playing is part of their strategy.
Preparation for Plan B – the Greek exit from the euro – has two elements. First, it requires provoking its citizens in the event of an exit. Without escalating the dispute, the Greek people won’t remain supportive of the government during the tough times that will follow an exit.
Second, it seeks to make the costs of Plan B exorbitantly high for the other side. The Greek government is doing this by allowing its citizens to move their money outside of the country.
Athens could curb the capital exodus if it demonstrated more conciliatory gestures. Or it could use capital controls to prohibit it immediately, but that would impair the threat.
Capital flight doesn’t mean money is migrating abroad in net terms, only that private capital is being exchanged for public capital. Greek citizens are borrowing money from banks that will be offset by the Greek central bank’s emergency loans (its emergency liquidity assistance, backed by the European Central Bank), which then transfers the funds abroad.
The transfers force the central banks of other countries to create new money without granting credit and complying with the payment order. In essence, these central banks are issuing to the Greek central bank an overdraft loan as measured by target balances.