Greece: It’s Time For Your Default And Debt Restructuring
For some reason, people think a sovereign default, and a subsequent debt restructuring such as Greece’s government faces, is something that is conceivable – the proverbial asteroid hitting the earth – but which has never actually happened.
Sometimes, raw data says more than words. According to a dataset from the National Bureau of Economic Research, there have been at least 153 sovereign debt restructurings since 1980.
Ideally, Greece’s government will be able to reduce the overall debt load, now around 192%, to something manageable, perhaps around 50% of GDP. This process is rife with danger, alas, and I suggest consulting with Russia (which had a default and debt restructuring in 1998-2000 that reduced the net present value of the outstanding debt by about 50%) to avoid some of the potentially bad outcomes, such as widespread asset stripping by foreign entities (which is already going on), or the loss of domestic sovereignity and the installation of some unelected EU-controlled autocrat, as arguably happened in Italy under Mario Monti. It also happened in Greece, under unelected technocrat prime minister Lucas Papademos, who was previously the governor of the Bank of Greece, and then afterwards became the Vice President of the European Central Bank. Papademos argued against a eurozone deal to write off half of Greece’s debts. He wanted a far smaller “haircut,” because a 50% writeoff would hurt banks.
Since Papademos’ stay of execution for the bankers, there have been a long series of “bailouts” by various official entities beginning May 2010, funded by directly or indirectly by taxpayers outside of Greece, notably Germany and France. None of this has helped Greece’s situation in any way. The Greek government’s debt/GDP was 130% at the end of 2010. A 50% writeoff would have reduced this to about 65%. The eurozone’s official government debt-to-GDP ratio limit is 60%.
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