I think you may well be right. Because the markets are all expecting a full Greek default it wouldn’t come as a shock and may well be the best route to take. I’d expect that to be a line of reasoning used often in the referendum/general election campaigning.
However, if that proves to be the best way out for Greece, does that make it a more tempting scenario for Italy, Spain or Portugal?
It looks like this Acropolis has sustained pretty heavy damage. Also, this isn’t something I’m going to be able to sell quickly. I can’t go any higher than $2,500.
Well we’ve got most of Greece’s treasures in the British Museum so we may as well make a bid for the full set.
Who says you can’t borrow any? Buying Greek bonds will be much safer after they write all their current debt off (assuming they do) than it is currently. Even though after the public disclosing of all the flaws of the Greek system, and without any external backing, they’re unlikely to have good ratings. Still probably much less than the absurd 25% or so current interest rate on their bonds.
They’ll have inflation, their standard of living will drop, probably significantly, but more than it would otherwise? It’s unobvious to me. For instance it seems that even the current austerity policies are putting Greece into severe recession mode, and might be aggravating the issue.
I’m not sure what’s the exact question put on the ballot will be(*), but if it were “should we leave the Euro and default completely on our public debt?”, if I were a Greek, I’d take my chances and vote “yes” (still would want some splaining’ about those porshes and taxes, though).
(*) In the French newspaper “Le Monde”, a cartoon about the Greek referendum had a text along the line “Do you want to hit yourselves on the head with a hammer for the next thirty years? YES/NO”
Tell this to all the financial institutions that do not lend any money to people that declared bankruptcy for a decade after the bankruptcy. Same logic, right? After all, if you have no debt after your bankruptcy, banks should rush to you trying to lend you money, no?
I was told that you actually become a better risk after bankruptcy. You have no outstanding debt and you cannot file for bankruptcy again for a specified time. Was I misinformed?
If this were just about Greece, then you might be right, but there could be a big effect on other European countries whose major banks have a large stake in Greek debt. Now I’m not sure if this is a valid concern or just more Chicken-Littling, but the concern is not just for Greece itself, but for the ripple effect taking down other countries’ economies with them.
Try to get a mortgage or a car loan immediately after bankruptcy. You will find out just how much of a better risk you’re considered. Hell, a few days ago I have seen someone post on one of the forums that he was rejected when trying to open a checking account at a credit union because of a recent bankruptcy.
I like this explanation and if that’s the reason behind the move, and the referendum does happen, it will certainly expose the hypocrisy of the opposition. Don’t think it will save the PM, but it will definitely damage the opposition.
You’re making the mistake of equating the finances of an individual with the finances of a nation. Nations play by different rules. Iceland defaulted, yet they’re able to raise money in the international bond market at rates cheaper than Ireland and Greece. It’s silly to talk about how nations should have to “tighten their belts” like individuals do when nations can print their own money (and no, that does not automatically cause hyperinflation).
… because, contrary to Heinlein, there is such a thing as a free lunch?
It’s not a free lunch. In times of high unemployment, cranking up the printing presses doesn’t create as much of an inflation risk, and a nation that is able to rid itself of burdensome debts does indeed become a better credit risk. Spouting cliches doesn’t refute that.
Exactly how is it not a “free lunch”? You owe money to all kinds of creditors. You default. You get rid of the “burdensome debt” AND you’re now a better credit risk. Free lunch all around!
Lenders lend money because they can make money through interest. A default isn’t going to chase a lender away from a prospective borrower forever.
If I have X income and 2X debt, I’m probably a bad credit risk whether or not I default. But if I do default, and I now have X income and zero debt, I’m a much better credit risk.
And remember that we’re talking about bondholders here. Bonds aren’t guaranteed, they simply get priority over other claims. Iceland basically gave foreign bondholders the middle finger and made them share in the losses. That’s the way it should be.
No, not forever.
Of course. And the creditor will just forget that other creditor who lost all the money he lent to you. Creditors are stupid like that.
No, they’ll simply charge a higher rate of interest.
I get the feeling you’re being purposefully obtuse in order to make some point.
Yes. MUCH higher. TANSTAAFL.
Comparing Iceland to Greece is ridiculous too. Icelandic (Icelandish?) hairdressers were not retiring at 50 with full pension.
Enough with the slogans. Those aren’t arguments. We’re talking about nations, and nations don’t play by the same rules as individuals. They don’t have to abide by “household budgets” or other nonsense.
And bringing up Greek hairdressers and their pensions is a complete non sequitur. Iceland’s debt problem was every bit as bad as Greece and Ireland. How they got there really doesn’t matter; they both end up broke.
Did anyone mention a “household budget”?
It very much matters how they got there when you decide whether they will end up in the same place again.
Oh, so profligate Greeks, is it?