I don’t see the core to this game

by on March 4, 2012 at 7:43 pm in Economics, Games, History, Law | Permalink

Mr Weidmann proposed last week that Germany’s Target 2 claims should be securitised. Just think about this for a second. He demands contingent access to Greek and Spanish property and other assets to a value of €500bn in case the eurozone should collapse. He might as well have suggested sending in the Luftwaffe to solve the eurozone crisis. The proposal is unbelievably extreme.

It also tells us something else: by seeking insurance against a collapse of the euro, the Bundesbank tells us it no longer regards the demise of the euro as a zero-probability event. If the Bundesbank seeks insurance, so should everybody else.

Here is more, from Wolfgang Münchau.  Here is another account, Weidmann by the way runs the Bundesbank.  As a general rule of thumb, any time you see an article about “Target 2,” it is important.

1 Doc Merlin March 4, 2012 at 8:51 pm


2 david March 4, 2012 at 11:30 pm

As is correctly pointed out, Weidmann did effectively propose to send in the Wehrmacht. As is also correctly pointed out, Weidmann’s threat is unbelievably extreme, aka, it is an incredible threat. Weidmann presumably knows this but is demanding it nonetheless (to act tough to German voters, perhaps?). So the equilibrium is that the claims are agreed to be securitized but if a situation ever occurs where the Euro collapses, nobody is able to enforce the lien.

3 Doc Merlin March 4, 2012 at 11:54 pm

“situation ever occurs where the Euro collapses, nobody is able to enforce the lien.”

Germany’s armed forces are far more advanced than the greek or spanish forces… it definitely /can/ be enforced.

4 david March 5, 2012 at 12:20 am

And the USSR’s forces were far more advanced than the GDR’s. What of it? Extracting value from a subject territory is a little more complicated in the age of capital accumulation than the age of pure resource extraction.

5 Miley Cyrax March 5, 2012 at 12:29 am

“I don’t see the core to this game.”

Not sure if pun… or typo.

6 Doc Merlin March 5, 2012 at 12:53 am

Neither, its economics lingo.

He’s saying he does not see a stable game theoretic solution.

7 Miley Cyrax March 5, 2012 at 1:35 am

I’m surprised and ashamed I hadn’t heard of it before. Thanks Doc.

8 Uninformed Observer March 5, 2012 at 7:37 am

But of course there’s a core… Ultima Ratio Regum

One hopes it’s just bluster, but at the end of the day, these situations always resolve one way or another. Here in culturally homogeneous America, there is precedent for peaceful resolution. A quick survey of my knowledge of world history shows that to be the exception, not the rule – unless I’m forgetting something? I don’t expect this to end well at all.

9 Frank March 5, 2012 at 1:26 am

Some private firms consult on the basis of these modelled game theoretic interactions. More discussion on this subject would find an audience.

10 Matt Flipago March 5, 2012 at 2:14 am

I understand the blog post title. Thank you math degree!

11 prior_approval March 5, 2012 at 10:37 am

‘It also tells us something else: by seeking insurance against a collapse of the euro, the Bundesbank tells us it no longer regards the demise of the euro as a zero-probability event.’

Change ‘euro’ to ‘coalition,’ and you have the Bundesbank doing what it has always done in German politics – set a marker in the sand that politicians cross at their own peril. And considering that when the Greens and SPD step up, things will look a bit different than they do now, and the fact that a German institution without much foreign influence
but lots of respect in domestic terms makes a pronouncement, I think that watching the Bundesbank is a nostalgic old man’s sport.

12 Roy March 5, 2012 at 10:48 am

When Germans feel they are morally in the right, whether they actually are or not, and the are facing a headwind, they tend to say really stupid things. This is their national character, and no matter how much education or experience the individual German has he is still a German. This is not racial determinism, it is cultural.

13 SuperSepp March 5, 2012 at 2:04 pm

There is something to that, Roy.
Still, this proposal is 5 years too late and has a snowball chance in hell. And Weidmann knows that perfectly. So consider it to be said for the home crowd only.

14 Roy March 6, 2012 at 2:36 am

That is exactly the point, it is a self destructive behaviour, and if you actually can talk to the guy in depth and make him think it through, I think it is a German male thing actually, they will probably admit that it is counterproductive, but they will just say they are morally justified.

This is such a stereotypical behaviour, I actually suspect its prevalence is one of the reasons German speakers invented psychoanalysis, that anyone who has dealt with German adult men for very long will be very familar with it. God knows I have lived with it my whole life.

It is actually not a totally negative trait, it is probably part of why Germans have such a good reputation as engineers.

15 Wolf March 6, 2012 at 5:22 pm

Complete documentation of the TARGET2 debate: http://www.robertmwuner.de/materialien_euro_literatur_target2.html

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