As everyone
knows by now, European leaders agreed on Monday to provide a huge rescue
package of nearly $1 trillion in an effort to stem the emerging European debt
crisis. This raises any number of
political, legal, and economic questions about Europe, the world economy more
generally, and the potential impact on the U.S.
But leaving aside such big-picture issues for the moment, does
it resolve the issue that first prompted the crisis (and
our interest in it here at the Lounge) to begin with? Namely, should Greece restructure its
debt now (or at least very soon), forcing creditors to take a haircut, or
should it muddle through and attempt to make current payments, accepting making the
severe austerity and other measures that come along with this bailout
package even more painful?
Recall that Buchheit and Gulati studiously avoid this issue in
their
roadmap on how to restructure Greek debt. But says
Felix Salmon:
In this context it’s worth noting that Simon Johnson, who
used to be the IMF’s chief economist, says that the Fund “floated in some
fashion an alternative scenario with a debt restructuring, but this was
rejected by both the European Union and the Greek authorities”. What that means
is that the idea is being seriously talked about at the highest levels — and
that even if the Greek government isn’t going to crack right now, it has a
clear “in case of emergency, break glass” Plan B temptingly sitting there for
whenever the pain of recession becomes unbearable. With Lazard on board as
sovereign advisors, a clear plan of action from Buchheit and the IMF
comfortable in principle with a default, the path of least resistance is quite
clear.
Today, John Taylor
appeared on Squawk Box (video embedded below) to discuss the European
situation, arguing that the bailout is likely to simply “delay the inevitable”
and urging an early and orderly restructuring of Greek debt.
Finally, over at Nouriel
Roubini’s blog, Anna
Gelpern (American, law), who has guestblogged
on the Greek crisis here at the Lounge before, takes the contrarian view,
arguing that Greece has little to gain and much to lose from restructuring now.
Related Posts:
Buchheit
and Gulati on How To Restructure Greek Debt
When Will Greece Restructure?
Greece Gets Bailout: Are We Done Now?
The Greek Bailout: War Versus Dishonor
What Do Those Greek Debt Contracts Say?
Greece: Argentina, Uruguay, or Twin Engine
Plane?
Blame It On Derivatives, Blame it On Goldman
Sachs, Blame It On the Nazis. But Don’t Blame the Greek Crisis on Greece
The Greek Crisis: Economic Meltdown or Mental
One?
The Modern Greek Drama: Comedy, Tragedy, or
Both?
The Modern Greek Drama, Part 2
Verge of the Unböring (The Modern Greek
Drama, Part 3)
Is 2010 The Year of Odious Sovereign
Defaults?