“The constraints imposed by market forces [on government deficits inside a single-currency union] might either be too slow and weak, or too sudden and disruptive.”
– The Delors Committee report on European monetary union, getting it exactly right in 1989
GREEK BONDS have lost one-half to three-quarters of their face value. Six national strikes have all ended in violence already this year. In the three months to April, public investment spending fell 42% from the start of 2010, but total spending still rose – and tax revenues sank – forcing the budget deficit still wider as the economy shrank 5.5% year-on-year.
What to do? Greece’s debt cannot be serviced, much less repaid. Everything says default – stop paying, write it down or write it off, with or without the lenders’ consent. Default is certain, and history says it would be better for creditors if the restructuring came before Greece misses a payment.
Uruguay’s “pre-emptive” restructuring of 2003, for instance, cost its creditors 8% of their money, according to an IMF study. Argentina’s “post-default” restructuring of 2005, in contrast, cost the affected bondholders some 75% of their original investment.
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