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Krugman: So Greece has defaulted. What does that mean?

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So the process has started. Here's the Professor (my emphasis and some reparagraphing):

So Greece has officially defaulted on its debt to private lenders. It was an “orderly” default, negotiated rather than simply announced, which I guess is a good thing. Still, the story is far from over. Even with this debt relief, Greece — like other European nations forced to impose austerity in a depressed economy — seems doomed to many more years of suffering.

And that’s a tale that needs telling. For the past two years, the Greek story has, as one recent paper on economic policy put it, been “interpreted as a parable of the risks of fiscal profligacy.”
We've gone down that road before, the one about how Greece was bad bad bad and deserves what it gets — just like all the other struggling economies. Krugman covers that point again, then goes on to the consequences.

One is this:
[A]usterity in a slump doesn’t just inflict vast suffering. There is growing evidence that it is self-defeating even in purely fiscal terms, as the combination of falling revenues due to a depressed economy and worsened long-term prospects actually reduces market confidence and makes the future debt burden harder to handle.

You have to wonder how countries that are systematically denying a future to their young people — youth unemployment in Ireland, which used to be lower than in the United States, is now almost 30 percent, while it’s near 50 percent in Greece — are supposed to achieve enough growth to service their debt.
Krugman has answers to the headline question. First, about Greece:
[Greece and Ireland] had and have no good alternatives short of leaving the euro, an extreme step that, realistically, their leaders cannot take until all other options have failed — a state of affairs that, if you ask me, Greece is rapidly approaching.
Then, about America:
[I]f you want to know who is really trying to turn America into Greece ... it’s the people demanding that we emulate Greek-style austerity even though we don’t face Greek-style borrowing constraints, and thereby plunge ourselves into a Greek-style depression.
In other words, Greece is still on target for leaving the euro, which will occur just as soon as the crisis is so bad that a euro-exit can't make it worse.

As to ourselves, timid stimulus may keep us limping along, but the Republican party really does want to take down the economy — it benefits their owners (Our Betters) and it damages Obama. Win-win, as they say.

Let's see how that plays out.


(To follow on Twitter or to send links: @Gaius_Publius)

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