Argument: Default is the best option for Greece

Issue Report: Greece bailout


Jeffrey Miron. “Let Greece Default”. Forbes. May 2010: “Rather than bail out Greece, the E.U. and IMF should allow it to default. This will hurt Greece’s creditors, but those entities assumed the risk when they loaned to a country long known for its profligate ways. If Greece does default, its economy may suffer in the short term. External credit will be scarce to non-existent, so Greece will have to live within it means. But however painful this adjustment may be, it is unavoidable if Greece wants to join the first rank of nations; current policies are unsustainable from every perspective, so the sooner Greece abandons them the better.”

John Markman. “Let Greece default on its debt.” Market Watch. April 28th, 2010: “The Greek debt fiasco could end surprisingly well for investors on both sides of the Atlantic.

If you sense there’s a catch, you are right. The best way out of this mess is for Greece to man up to its deficit problems by defaulting on its sovereign bonds, withdrawing from the European monetary union, reviving and devaluing the drachma, and beginning the financial equivalent of a twelve-step program to cure its debt addiction.

While that result might sound bad for investors, it really isn’t. As long as Greek debt holders receive some reasonable return of capital in the process, as I suspect they would, they can move on from this mistake to invest in other distressed but not doomed credits with greater potential for return. Read about Greece, Portugal debt downgrades.

Then they can turn the page on this unfortunate chapter in financial history, much like General Motors and Chrysler debt holders did in the United States in March 2009, and it will be game on for an expansion of the global credit and equity bull market.”