Why a Greek default wouldn’t be news
“From 1800 until well after World War Two, Greece found itself virtually in continual default,” write Carmen Reinhart and Kenneth Rogoff in “This Time Is Different” — it’s a point Nouriel Roubini underlines in our latest look at Europe’s mess, from Noah Barkin.
In other words, for Greece over the long term, default is more steady-state than news.
By Reinhart and Rogoff’s calculations, Greece spent 50.6 percent of the time between around 1800 and 2008 in default or restructuring, which puts it third after Honduras (64 percent) and Ecuador (58.2 percent) in Europe, LatAm, North America and Oceania. “Greece’s default in 1826 shut it out of international capital markets for 53 consecutive years,” they write.
So when a default, or restructuring or whatever they call it happens, shouldn’t we just shrug our shoulders? Our story points out that in this Greek debacle, the pain is routed to taxpayers much more directly than in Latin America’s debt crises in the 1980s:
In Latin America, banks were given incentives to maintain their sovereign debt exposure over many years. When the day of reckoning finally came with the arrival of Washington’s Brady Plan in 1989, it was the financial institutions that had lent the money in the first place which felt the pain.
In Europe, by contrast, the banks holding Greek debt are gradually being bought out by European governments in what former Argentine central bank governor Mario Biejer has likened to a “giant Ponzi scheme“.
Reinhart and Rogoff’s definition of default is perhaps broader than some would like. In the European Union especially, officials are busy trying to invent new weasel-words to enable politicians to package whatever they ultimately decide to do with Greece (I’ve got restructuring, rescheduling – any more, or suggestions?)
But whatever name they give it, the impact is sounding wide and painful enough to be dangerous. Much more than news, its consequences could be historic.