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Comment by smegel | Hacker News Reader

I get the feeling that the EU would rather forgive Greek debt than see Greece either leave the EU or suffer a prolonged economic stagnation. Smart people in Greece have probably figured this out, and are possibly just holding out for Germany to come out and say "you know, let's just write of a small fraction of our GDP to put this crisis behind us". Reminds me of the banks that were "too big to fail" after the GFC.

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And that would, as in the case of the banks, create all kinds of moral hazard issues. Being a Greek, I could potentially feel relieved by an outcome such as the one you describe. Nevertheless, any such solution would be just a painkiller that fails to address the source of the pain. The Eurozone is fundamentally broken so, even if it is painful, I think exiting the Eurozone is the most appropriate action at this stage. How we can work together in Europe to make sure this does not mean we default to our obligations towards other European people is the question. And of course this should be based on an assessment of the debts we took to support indigenous corruption and consumption (which we should be paying) versus the debt of the last five years which has accumulated just to support imported incompetence (as proven by the outcomes) and mostly served as a concealed European banks bail out.

It seems most likely that Greece will exit. It makes the most sense. Your moral hazard argument is correct, if Greece is forgiven, then other politicians in Italy and other weaker countries will sense an opportunity; one that cannot be allowed financially. It allows Greece to survive and the euro to continue. The issue still remains with the euro, that there is a common currency and no common planning. That the euro has survived so long is a testament to the integrated economies of Europe and that their planning is typically similar as a consequence. However, only a unified planning commission can let it survive much longer.

The moral hazard argument feels a bit flat considering that

A) Imposing harsh sanctions on Germany to "repay its debts" after WWI was a major factor leading to WWII, and

B) The modern industrialized economies of northern and western Europe owe their start to the Marshall Plan. The loan portions of the plan were eventually repaid, but represented less than 10% of the over $12 billion in aid given.

In historical terms, working with Greece to restructure and actually fix the economic problems would be a financial drop in the bucket compared to the money lavished on rebuilding other European economies within living memory.

War reparations aren't debt - they are the plunder of the winning party in a war.

You could argue that Greece found itself in war against the financial markets. They share some of the blame (like everybody does in any war), but the markets won, so they could provide reparations for the defeated Greece. As in the Marshall Plan example, it is in the interest of (some) financial market players to ensure that Greece can come back to the table, and specially to ensure that the Euro-area has a long-term prospect.

The analogy may seem stupid, but I say it describes pretty well the world we are leaving in.

The moral hazards for the banks were already created as soon as Greek's loans from the banks were replaced by their current loans from the ECB and other sovereign institutions. That ship has sailed. The original lenders already have their money back, no matter what Greece does now.

> I get the feeling that the EU would rather forgive Greek debt than see Greece either leave the EU

I don't. For one, France, Britain, and Germany would have hell to pay in their domestic politics if that happened; for another, Italy, Portugal, and Spain would be the next cabs off the rank if an example is offered that simply refusing to pay the last round of debts gets you forgiveness and more credit.

That incentive does not seem so strong if you consider the situation that Greece has reached for them to be bailed-out (if that ever happens).

Italy, Spain and Portugal are not in the same situation as Greece. And being bailed out would not mean that Greece has just gotten German-level prosperity, just that they can start walking again on their own. I do not see that as a very alluring prospect for would-be "Greeces".

Politicians all around Europe would do us a big service if they started explaining this to their citizens, instead of fostering confrontation between the European peoples.

If Greece were the only one they just might do that but Greece is just the first of several EU countries in similar predicaments. After them you have countries like Spain and Italy. Same problems with bigger numbers. What you do for one the others will expect as well. This isn't about Greece it's about whom ever comes next.

Germany (and lots of Europe) was rebuilt at great expense and with considerable willingness to forgive debts or reparations, because, quite rightly, the world realized impsosing draconian penalties on Germany after wwi was a major factor leading to wwii. Even since the end of the wwii, Germany had to have debt forgiven and be bailed out more than once for reckless economic policy. Now I feel like whoever is calling the shots are not just being hypocritical, but downright shortsighted. Greece messed up, but they've paid a hefty price, just tell the creditors they're SOL and are going to have to accept a haircut, forgive a majority of the debt and move on.

That is indeed the historical facts. I think that the Greeks need to remind the Germans of this each and every day.

https://en.wikipedia.org/wiki/London_Agreement_on_German_Ext...

"Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.[2]

An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction.[3]

The agreement significantly contributed to the growth of the post-war German economy and reemergence of Germany as a world economic power. It allowed Germany to enter international economic institutions such as the World Bank, International Monetary Fund and World Trade Organization."

Greece would kill for those kinds of terms I think.

the people in charge of policy back then cared about long-term political and economic stability, the people in charge today mostly care about getting saved from their stupid investments.

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