Here is a section from a recent analysis by my personal favorite economist. i'd include the whole thing but i want people to go to his site and look around. Original Article
The following piece of analysis was summarized in an OpEd published Tuesday in theFinancial Times. [/i]
Greece is insolvent, uncompetitive and stuck in an ever-deepening depression, exacerbated by harsh and excessive fiscal consolidation. It is time for the country to default in an orderly manner on its public debt, exit the eurozone (EZ) and return to the drachma to rapidly restore solvency, competitiveness and growth.
Exit will require a conversion of euro liabilities into the new currency to limit the balance sheet effects that the depreciation of the new national currency will entail.
Greece can exit the monetary union in an orderly and negotiated manner (i.e. limit the collateral damage to its own economy and financial markets that this exit would imply) if orderly mechanisms are used and appropriate official finance is provided. Such official finance to Greece and other EZ members under stress will limit the contagion and the losses for other periphery and core creditor countries, and will ensure that the domestic Greek financial system and economy does not suffer a chaotic implosion.
Default and exit will be painful and costly, but the alternative of a decade-long deflation and depression would be much worse, economically, financially and socially.
Moreover, there are historical precedents for countries successfully taking the route of an orderly default on unsustainable foreign liabilities and exit from unsustainable currency pegs and/or currency boards.
Why a Default/Debt Reduction and an Exit From the EZ Are Necessary and Desirable
Greece is now in a vicious circle of insolvency, lack of competitiveness and ever-deepening depression, exacerbated by draconian fiscal austerity that is making the recession much worse. Greece’s public debt is heading toward a level of 200% of GDP in two years’ time. And while fiscal austerity and structural reforms are necessary to restore medium-term debt sustainability and growth, in the short run they will lead to an even deeper recession, thus making the deficit and debt even more unsustainable. Indeed, the latest economic data suggest that the Greek recession is becoming a near depression, with GDP expected to fall by over 7% this year and with forward-looking indicators of economic activity (such as the PMI, which is at a level of 43) suggesting a deepening recession. Argentina in 1999-2001 fell into the same trap of deficit, austerity, deeper recession, depression, higher deficit, greater insolvency.
Thus, it is time for Greece to orderly restructure/default on its public debt, exit the EZ and return to the drachma to restore solvency, competitiveness and growth.
Why Greece should Default and Abandon the Euro (full analysis)
EcoMonitor