The Streetwise Prof nails it

Streetwise Professor's game-theoretic take on the Euro crisis is one of the best recent descriptions I've read of the real problems underlying the signs we're seeing of Eurozone disintegration.

For me, the money quote:

But the outstanding losses are not distributed equally across countries. This leads to disputes among EU members over how to provide the public support. Those facing bigger losses want to use EU-wide mechanisms that spread the losses to other countries facing smaller losses. The latter want those facing bigger losses to contribute the lion’s share of any public support.

It pays to see the situation not as a team of finance ministers trying to co-ordinate the best overall response to the crisis, but rather as individual national actors trying to optimise the overall response with respect to their countries' own interests - or indeed, in several cases, their personal political ends.

For instance, I view the Slovakian SaS political party's opposition to the EFSF bailout as a perfectly rational national response - Slovakia has no doubt done the math on its current and future exposure and knows it's better off now. Of course, if the Eurozone countries want a "yes" from Slovakia (and they do) they can change the maths by either promising future aid / funding / projects to offset the Slovak projected loss, or take a cheaper option and effectively bribe the key SaS decision makers at a personal level with EuroParl appointments and favours.