STOCK MARKET WATCH -- Friday, 24 July 2015

[Demeter]

19. 2010 and all that—Relitigating the Greek bailout (Part 1)

https://medium.com/bull-market/2010-and-all-that-relitigating-the-greek-bailout-part-1-a889d468e8ae


It’s becoming a common theme of the more intelligent end of criticism of the Eurogroup to identify the 2010 bailout as the real error. Triangulating between Karl Whelan, Mark Blyth, Simon Wren-Lewis, Steve Waldman and Martin Sandbu, for example, we can identify the following argument (which of course doesn’t do justice to any of them — do please read the links rather than assuming I’ve summarised anything accurately!):

1. The 2010 bailout was mainly directed at stabilising European financial markets, so either

2a. The actual amount of financing available for the Greek fiscal deficit was smaller than it might otherwise have been, or

2b. Greece would have benefited more in the long term from a program with the same deficit financing but a face value debt writedown

3. So, most of Greece’s economic problems today would have been better if it had defaulted in 2010 rather than accepting the Eurogroup’s program.

There’s some truth in these points — as I say, it’s the most intelligent critique of the Eurogroup — but in my view the conclusion is wrong and the 2010 bailout was not a mistake. It’s worth relitigating in detail though, because in going through the choices made in 2010 we can learn a lot about how bailouts in general operate, and how the development of the programs since 2010 could end up generating serious errors going forward. This is going to have to be (at least) a two-part series because I want to get quite detailed — this part deals with point 1 above and the question of “Who was the 2010 bailout meant to benefit?”.

MUCH MORE, OF COURSE AT LINK