Let Greece Default?

A Harvard economist says yes.

Rather than bail out Greece, therefore, 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. In contrast, a bailout forces unwitting taxpayers to foot the bill for Greece’s sins. This can only breed resentment, not to mention reduced incentives for other countries to restrain their own spending.
If Greece does default, its economy may suffer in the short term. External credit will be scare to non-existent, so Greece will have to live within it means. This will require slashed pay-scales and benefits for civil servants and drastic cuts in the number of such jobs. It will also require the repeal of Byzantine regulation, burdensome taxes and policies that force a large fraction of the population to feed at the public trough.
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.

Posted by on April 30th, 2010 at 11:03 pm

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