According to a recent New York Times newspaper, a default by Greece would be a catastrophe for
Greece, for its European creditor banks and for financial institutions. The default
would affect every possible body taking advantage of Greece.
The socialist government voted to apply another dose of growth-killing austerity.
Looking into the past, austerity measures have done more harm than good, the article stressed.
In return, Europe was supposed to release the next installment of bailout money and come up with a new long-term assistance
plan designed to permit Greece to recover and repay. Predictably, the
short-term money, urgently needed to keep French and German banks solvent, was
easily approved. Long-term relief, urgently needed to keep Greek hopes for
recovery alive, was put off until after Europe’s August holiday.
Within the next two months the situation will be worst while debts will be larger, private
investors more distant and interest rates higher.
The New York Times reports that the key to avoiding default are lower interest rates and
higher growth rates. Given enough time, and enough fiscal room to restart
growth, Greece could pay back the refinanced debt in full. The austerity
measures do not give any solution. On the other hand tax reforms, privatization
of publicly owned services and efforts to reopen the Greek market, could help generate
sufficient growth for Greece.
The leaders of Germany and France still pretend that Greece is not moving toward default. They do not see this alternative as a
logical financial approach.