Greeks, Be Careful What You Wish For

I see people saying that the Greeks are fed up with austerity and are likely to follow Iceland’s example and just default.

There’s just one little problem with this idea, and that is that Iceland and Greece are not the same thing. Iceland – the sovereign nation – didn’t default. A group of Icelandic banks did default, and then the Icelanders voted not to assume liability for the banks’ default. So the Icelanders basically shrugged and went back to fishing and whatever else they were doing to make a living, sans banks. I guess it was hard for a few folks who had to go from a comfy bank office to harvesting cod sperm¹, but they’re eating.

The Greek government, on the other hand, is dependent on continued new credit to pay its daily bills – salaries, entitlements and so forth – and the prospective default is of government – sovereign – debt. So if the Greeks do choose to default, it is reasonable to expect that the government will be cut off from new credit. The crunch that will follow will make the EU conditions look like a walk in the park. The government will have no money except its paltry tax collections with which to pay its bills. Yes, Greece can leave the EMU, print up a bunch of drachmas and hand those out instead of euros. And exactly how much credibility will the new drachma have? Figure it out.

When you print ’em up, make sure you use nice soft paper, not like the scratchy stuff that Zimbabwe used, so they will at least have some utility. A much better idea would be to start kissing a little German butt. That 150 billion euro package will buy a couple more years, surely. And then the horse might sing. Doubtful, but possible I suppose. Although on second thoughts, Merkel’s butt isn’t exactly little, but you get the idea.

¹Yes, they really do harvest cod sperm. The Japanese eat it. Of course.

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