The PIIGS Who Fell to Earth

Just past the bank closing time of 4 pm on Friday, passers-by at a number of secluded locations throughout Germany could hear the rumble of diesel engines coming to life, as rows of large unmarked trucks escorted by security vehicles began moving out onto the public highways. Roads were busy coming out from the city centers as holiday-makers were anxious to enjoy one of the last weekends of summery weather. Traffic was light coming into town, so the long convoys had little trouble moving quickly.  A few outbound motorists gazed with curiosity at the sight, but most paid little heed.

The convoys reached their destinations -- the rear entrances of most of the major bank locations throughout the Bundesrepublik. The security vehicles, blue lights flashing, blocked off the ends of the streets, and uniformed men began unloading one trolley-load after another of boxes, as armed guards scanned the streets. Within an hour the trucks were empty, and the supervisors spoke briefly into their mobiles. Then the men began extracting other boxes, filling the trucks again. Another hour, and they were gone.

In her office in Berlin, Angela Merkel waited by her phone.  A small group of advisors waited with her, unusually quiet.  Their eyes moved back and forth between the clock and the telephones. Finally, a ring shatters the silence. The defense minister picks it up. He listens, nods, barks an acknowledgment into the phone, and hangs it up. He turns to the chancellor.

The Rubicon has been crossed.

She nods. She turns to the foreign minister.

Time for the first call, then.

The aide dials a very private number. It is answered. He hands the handset to the chancellor.

Nicholas. This is Angela. I am very sorry to have to tell you this, under such circumstances. But you will understand why it must be like this. And I wanted to tell you first.

She relayed her news.

The aides could hear the scream of pure anger as Merkel held the phone away from her ear. The tirade continued for about half a minute. Then there was complete silence. She put the phone back to her ear.

My dear Nicholas, you can hardly complain. After all, you threatened me with the same thing back in May. You see, when you did that, you made explicit what has been the case for some time now. You have placed us in the Prisoner’s Dilemma. You are familiar with that?

Of course. We French know philosophy. The first prisoner who cooperates, gets the deal. In order to avoid having one prisoner betray the others, they must all have confidence that none will cooperate.

And among the Euroland nations with the ability to have a strong currency, the situation is the same. If any one suspects that another is about to leave, the only thing to do is leave first. When you threatened to leave, we realized that was the position in which we had been put. So we had to make our preparations.

Sarkozy spoke in a calm, level voice.

But I was not serious. It was a bargaining position.

Perhaps. But the Prisoner’s Dilemma requires certainly, not probability.

Sarkozy was silent for a long moment.

This is irrevocable? There is no action on our part that could stop this from happening?

No. We did not call to bargain. The time for that is past. The position of German bonds has begun to erode. We decided we had to act.

Very well. When will the public announcement be made?

At 11:50 tonight. The decree takes effect at midnight. That will give some time for adjustments to be made before the markets open.  And of course New York will be closed Monday, as it is a holiday there. We will close Frankfurt as well for the day; you may want to close the Bourse. I imagine Cameron will close the London markets as well.

Ah, who knows what he will do. Who will you call next?

The other major Eurozone leaders, except of course for the PIIGS. It is better that they have no warning.

Of course. What about Obama?

Just before midnight. I see no reason why he should have much warning. He might actually try to do something about it. Then I will call the Asians, too -- Japan, and the Chinese.

What about Von Rompuy?

Who? Oh yes. Why would I want to call him?

I see your point. Well, I am sorry that it has come to this. Of course, we must follow your lead, and we have little time to make the practical arrangements. You will excuse me, I need to make some calls.

Of course. I am sure you will need to summon your Cabinet.

Actually, New York is still open. If I call my broker I can get a few short contracts placed before they close.