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Yanis Varoufakis, the economics professor turned Finance Minister of Greece, is considered a master of game theory – the art of strategic decision making with all the feint, brinkmanship and calculus that goes with it. He studied and wrote about it for much of his academic career.

But that expertise got him precisely nowhere this week, when he got out-gamed by Wolfgang Schaeuble, his steely German counterpart who essentially said "Nein" to everything. No debt forgiveness, no agreement to cut Greece free of its international financing program, no sense that the austerity measures so beloved by Germany will get diluted. "We agreed to disagree," Mr. Schaeuble said.

No surprise. Mr. Varoufakis's game was deeply flawed from the onset and Mr. Schaeuble shut him down in the first few moves of the chess game.

The first big mistake on the Greek Finance Minister's part, and that of new Greek Prime Minister Alexis Tsipras, was to make it abundantly clear even before their Syriza party victory on Jan. 25 that Greece had every intention of staying in the euro zone. That immediately put the Greek negotiators in an iron box with no lid, for membership comes with rules and regulations, however absurd some of them are, that are essentially non-negotiable. When a euro-zone member such as Greece is under a bailout program whose single largest sponsor is austerity-mad Germany, the room for negotiation is even less.

His second big mistake was pleading for financial fixes that looked like gimmicks, such as the conversion of the European Union bailout debt to bonds whose payments would be tied to economic growth, or lack thereof.

Such financial beasties are a good idea, but in Greece's case, they would do absolutely nothing to jump-start the economy in the short term. Greece's official debt, at 175 per cent of gross domestic product, is highly misleading. The debt payments are low by euro-zone standards because the maturities on the EU portion of the debt (€195-billion or $276-billion) have been extended and principal payments deferred. Mr. Schaeuble obviously considered GDP-linked bonds a meaningless tweak. What the German minister wants is more austerity – stick with the program, kid – and wholesale reform of an uncompetitive and corrupt economy.

The problem is Greece either can't reform or won't reform. In fact, one of Syriza's first acts was to call off the privatization of Greece's biggest power company and its biggest port. It then launched a review of the $1-billion (U.S.) expansion of the Skouries gold mine, owned by Vancouver's Eldorado Gold, in northern Greece. If the project is killed, the foreign investment that Greece so desperately needs will go elsewhere.

Greece's economy would improve fast if it were on the receiving end of a gusher of private or public investment. The former now appears out of the question because of Greece's inability to overhaul its economy and apparent intent to reverse competitive measures already announced, such as the privatization campaign. That leaves the option of stimulus through massive public spending. But that's a non-starter, too, as long as Greece is locked into the austerity program demanded by the EU, the European Central Bank and the International Monetary Fund.

Still, there is an option – Greece's exit from the euro zone. After Mr. Varoufakis was given the bum's rush in Berlin, the idea must – secretly – appeal to him. Ownership of a currency that he could deflate and hose out to fund public investment and employment schemes must have enormous attraction.

Wouldn't Grexit, as it's called, utterly destroy the Greek economy? To be sure, it would be no joyride, but it may not be a dire as advertised. Argentina ended its currency peg to the dollar in 2001. The shock triggered a default and plunged the country into deep recession. But the country rebounded a couple of years later. A decade earlier, the Eastern European countries survived the breakup of the Soviet Union's ruble zone. Currencies come and go.

Germany, the other relatively healthy euro-zone economies and the ECB consider the euro "irreversible." It is not, and therein lies Greece's leverage. If Mr. Varoufakis and Mr. Tsipras determine that leaving the euro would be no worse, and possibly a lot better, than sticking with the euro and the fiscal handcuffs that go with it, then the negotiations with Mr. Schaeuble and his supporters would change in an instant.

In effect, Greece would find itself in a no-lose situation: Give us massive debt and austerity relief or we will default and say goodbye. The prospect of Portugal, Spain and Italy following Greece out of the euro zone would only give Greece more leverage with its bailout masters.

Mr. Varoufakis knows he didn't get elected to ensure the status quo – economic misery. After hitting a brick wall in Germany, watch his game change radically.

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