"The only way to stop this in the end is for Greece to start running balanced budgets, at which point it becomes possible for them to service the existing debt. "
Well, not really the only way, economic growth (and ensuing inflation) could also address this situation. In fact, these austerity programs of which you speak will be deflationary and exacerbate the problem to some extent, but it's not clear what choice they have at a 25% bond rate. But the point is that if the EU abandons Greece, Greece is really and truly fucked, I think, and we shouldn't think that it's just some tough medicine and they'll come out the stronger for it. I'm not saying that it follows from that that the EU must bail them out, but I think there are moral and prudential considerations.
And note that whether or note this is a glimpse into the US future depends at least to some extent on US monetary policies. US debt was very high after WW2, although far less of that debt was held by foreign entitites.
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Date: 28/4/10 16:41 (UTC)Well, not really the only way, economic growth (and ensuing inflation) could also address this situation. In fact, these austerity programs of which you speak will be deflationary and exacerbate the problem to some extent, but it's not clear what choice they have at a 25% bond rate. But the point is that if the EU abandons Greece, Greece is really and truly fucked, I think, and we shouldn't think that it's just some tough medicine and they'll come out the stronger for it. I'm not saying that it follows from that that the EU must bail them out, but I think there are moral and prudential considerations.
And note that whether or note this is a glimpse into the US future depends at least to some extent on US monetary policies. US debt was very high after WW2, although far less of that debt was held by foreign entitites.