If Greece Defaults, Imagine Argentina, But Much Worse

The best option for Greece is conceding on Europe’s demands for austerity, argues James B. Stewart for the New York Times, to avoid the economic havoc of Argentina, which has defaulted on debt multiple times. A Greek default would be worse than Argentina’s. Greece could expect a run on banks of a much higher magnitude and confusion over currency with a steep drop in purchasing power. Argentina’s link to the US dollar was self-imposed, while Greece would have to regroup in exiting the eurozone and transitioning to a worthless drachma. Unemployment would rise sharply amid protests and instability, and the country would struggle to find lenders. Greece, as an import economy, would suffer more than Argentina as an export economy. Some Greek politicians contend that “default would be manageable and give Greece more leverage in longer-term negotiations to keep Greece in the European Union and eurozone.” Stewart concludes that politics do not always follow sound economics. Voters may defy common sense and foreign creditors to pursue a populist agenda that ensures years of low living standards. – YaleGlobal