Submitted by
Wall St.
Daily
as part of our
contributors program
This is truly the
euro crisis that never ends
!
Yesterday, the U.S. stock market opened sharply lower because of
more fears of a "disorderly default" by Greece. The Institute for
International Finance (
IIF
) warned that the ripple effects could force Italy and Spain to
seek aid.
Well, duh. Pundits didn't label this a debt "contagion" by
accident.
But let's be real.
It's been almost two entire years since Greece received its
first bailout package. It's safe to say that by now the market's
expecting - and pricing-in - a full-blown default by Greece.
So, let's get it over with already!
I know that sounds like dangerous advice. But after viewing the
latest research from Barclays, I'm convinced it's the right move.
Let me explain…
There
is
Life After Default
If Greek defaults on its sovereign debt, it wouldn't be the
first time.
Incidentally, the country carries the unique distinction of
being the world's first sovereign default. In the fourth century
BC, 10 Greek municipalities defaulted on borrowed funds from the
Temple of Delos.
And it's also a serial defaulter. Greece has defaulted five
times since 1800, most recently in 1932.
Clearly, Greek's own experiences reveal there is, indeed, life
after default. So what's the country waiting for?
Well, if its leaders are afraid a default won't be tolerated in
modern times, they need to consider the most recent examples set by
Russia and Argentina…
In 1998, Russia defaulted on $40 billion in local debt. Within
two years, its economy was growing by double-digit rates. And it
continued to do so for the better part of a decade under Vladimir
Putin's leadership.
In late 2001, Argentina defaulted on $95 billion in debt. Yet,
by the end of 2002, its economy returned to growth. And it
continued growing for eight straight years.
Let the Weak Fail… and the Strong Grow
A recent analysis by Barclays, which charts the world's key
governments by debt and deficit to GDP, is also instructive.
As you can see, Russia and Argentina rank among the more
financially sound. Meanwhile, the countries dominating the
headlines today - Greece, Ireland, Italy, Portugal, France and even
the United States - rank as the weakest.
Bottom line: As Howard Davies, a former U.K. central banker and
financial regulator, says, "It's too late for Greece [to avoid
default]." So let's pull off the Band-Aid already and get it over
with.
It won't be painless or even remotely enjoyable. But it's
necessary if Greece ever wants to get its financial house in order
and its economy growing again.