their regional provocations, knowing full well that Trump cannot afford a full-scale war and the oil-price spike that would result from it. Moreover, Iran does not want to enter negotiations that would give Trump a photo opportunity until some sanctions are lifted. With both sides reluctant to blink first – and with both Saudi Arabia and Israel egging on the Trump administration – the risk of an accident is rising. Having perhaps been inspired by Trump, Johnson naively thought that he could use the threat of a hard Brexit to bully the EU into offering a better exit deal than what his predecessor had secured. But now that Parliament has passed legislation to prevent a hard Brexit, Johnson is playing two games of chicken at once. A compromise with the EU on the Irish “backstop” is still possible before the October 31 deadline, but the probability of de facto hard-Brexit scenario is also increasing. In Argentina, both sides are posturing. Fernández wants a clear electoral mandate, and is campaigning on the message that Macri and the IMF are to blame for all the country’s problems. The IMF’s leverage is obvious: if it withholds permanently the next $5.4 billion tranche of funding and ends the bailout, Argentina will suffer another financial collapse. But Fernández has leverage, too, because a $57 billion debt is a problem for any creditor; the IMF’s ability to help other distressed economies would be constrained by an Argentinean collapse. As in the other cases, a face-saving compromise is better for all, but a collision and financial meltdown cannot be ruled out. The problem is that while compromise
The good news is that in the four scenarios above, each side is still talking to the other, or may be open to dialogue under some face-saving conditions. The bad news is that all sides are still very far from any kind of agreement. Worse, there are big egos in the mix, some of whom might prefer to crash than be perceived as a chicken. The future of the global economy thus hinges on four games of daring that could go either way. © Project Syndicate Worse, there are big egos in the mix, some of whom might prefer to crash than be perceived as a chicken. requires both parties to de-escalate, the tactical logic of chicken rewards crazy behavior. If I can make it look like I have removed my steering wheel, the other side will have no choice but to swerve. But if both sides throw out their steering wheels, a collision becomes unavoidable. The bad news is that all sides are still very far from any kind of agreement. Nouriel Roubini , a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton administration. He has worked for the International Monetary Fund, the U.S. Federal Reserve, and the World Bank.
American Consequences
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