Europe's Moment of Truth

What a silly over-simplification of his actual views.

Yup, in Krugman's world there is no upper limit on credit.

I generally agree with statements like that about krugman, but in this case I believe he is right.

demanding a country raise taxes during a recession, with no less than 25% unemployment, is ... well i don't know the exact word, but its bad.

its clear that nations in joining in this union gain some benefits, but they loose the control of their own money. and that has been show to be more than just paper, they loose their sovereignty.

This is also how the market participants see it. Or to put it in terms of art, the creditors are expected to estimate credit risk and price loans accordingly, and it is folly to underestimate it. When loaning to a government it is called "sovereign risk".

Creditors charge a healthy premium risk for the eventuality that they will not be paid back. Sometimes, the risk materializes and they do not get paid back.

It is their right to get mad and stop giving more credit, but it does not follow that it is not in their interest to give more credit, and try to solve the problems without forcing the debtor to bankrupcy.

Depends...

Globally? None. This has happened before (even in similarly developed countries - see Argentina) and will happen again.

For Europe? It's now clear that countries in the euro zone can default. A few years ago this was associated with the risk that private lenders will turn away from other Southern European (Portugal, Italy, Spain) countries, in turn raising their interest rates and thereby also pushing them into bankruptcy. Now that most debt of Greece is owned by either the ECB, EFSF or the IMF and the bond markets seemed to be back to business as usual this isn't a huge risk anymore.

Long term it might mean that lenders will do some due diligence even for countries of the euro zone (then again, many of them got to sell the Greek bonds at full value to the ECB, so who knows...)

Edit: As you wrote "forgiven" - debt is usually not forgiven but renegotiated once the indebted country stops (or threatens to stop) servicing said debt in the hope that an agreement can be found which is better then a unilateral default.

Germany owes its prosperity to Europe writing off most of its debts in 1953. (Despite acting like total Nazis.) Not to mention getting out of paying Greece for WWII reparations. (http://www.cnbc.com/id/102495059) So it can work out quite well!

Also, the debt run up by a US-supported Greek dictator is “odious debt”, and not owed by the population. (http://www.euronews.com/2015/04/17/chomsky-says-us-is-world-...)

The kind of precedent that the Eurozone does not want to see happen. Spain, Ireland and Portugal have taken loans and paid them back or are paying them back.

If any country can default their debt without consequences I leave it to you to imagine the new crazy interest that a EU country will have to pay given the "risk" of a default. That's pretty bad for the three country mentioned above.

In 1953, 60% of the German debt was cancelled through negociation, allowing the ensuing economic boom.

Please notice that loans come with an interest rate, which varies accordingly to the supposed risk they present. That means that any creditor lends money explicitly accepting the potential risk of not being repaid, compensated by compound interest.

There are many precedents. In fact most countries did failed their debt at some point, the real matter here is politics: the Greek case has been managed in the most insane way, and the Troika simply want to put the fault on someone else. However Tsipras and al weren't governing back when Greece was (against all odds and reasons) accepted in the Eurozone; they weren't when the Troika decided to bail out the French and German banks instead of refinancing the Greek economy; so they're actually quite entitled to their refusal of bearing others' misdeeds.

> What kind of precedent would it set if Greece's debts were forgiven

Debt are forgiven all the time. In fact IMF and co should do more forgiving because they loaned at unfare rates to countries in Africa that had 0 financial expertise or were ruled by bloody dictators. Why should the people pay for that? they shouldn't. Themselves have been scammed and the money is stashed in Swiss accounts while the common people saw none of it.

The situation of Greece is off course different except that it's really a moment where we will see whether EU is the real thing or it's just every country for itself. If the latter then it's not going to work much longer. It will be the end of the EU.

The other peripheral countries, like Spain, have high unemployment rates. The people are also tired of austerity. If they see that a left-wing government can force their creditors to blink, they might try it, too. And that might cause another crisis.

Except that this is just a manoeuvre from Tsipras to gain time and put the blame on the rest of the EU when they are forced to leave the Eurozone.

The referendum is planned for July 5th while Greece's obligations to pay their debts are on June 30th.

It's clear in the eyes of everyone that it's a political move. Tsipras has been feeding lies to the Greek people. He is a populist.

The following scenario is likely to happen on June 30th: - The European Central Bank will maintain ELAs to their current level, it means that Greek banks will have to default.

- The Greek government will have to refill their bank and nationalize them. Since they have no power over the euro, they will start printing their own money which will be worth very little.

Hardly any citizen can make an informed decision about this topic. We elect leaders, who decide to trust certain experts, precisely so we do not have to be informed about every subject under the sun. The Greek government should decide and accept the blame for the consequences. Calling for a referendum is farcical.

You're are caricaturing. that's not what Keynesians say. Spending to stimulate growth during a financial crisis ? sure,that's what the USA just did. But not spending just for the sake of it. And bailing out private banks with public money is not Keynesian-ism. It's moral hazard.

Keynesians advocate for large amounts of public spending during recessions to stimulate the economy. They don't advocate for racking up a large amount of public dept to spend during the periods of growth, which is what happened in Greece.

There are many other issues with the Greek economy such as clientism, the inability to collect taxes, etc that all economists would agree needs fixing.