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发帖数: 7948 | 1 CAMBRIDGE – The Greek government needs to escape from an otherwise
impossible situation. It has an unmanageable level of government debt (150%
of GDP, rising this year by ten percentage points), a collapsing economy (
with GDP down by more than 7% this year, pushing the unemployment rate up to
16%), a chronic balance-of-payments deficit (now at 8% of GDP), and
insolvent banks that are rapidly losing deposits.
The only way out is for Greece to default on its sovereign debt. When it
does, it must write down the principal value of that debt by at least 50%.
The current plan to reduce the present value of privately held bonds by 20%
is just a first small step toward this outcome.
If Greece leaves the euro after it defaults, it can devalue its new currency
, thereby stimulating demand and shifting eventually to a trade surplus.
Such a strategy of “default and devalue” has been standard fare for
countries in other parts of the world when they were faced with unmanageably
large government debt and a chronic current-account deficit. It hasn’t
happened in Greece only because Greece is trapped in the single currency.
The markets are fully aware that Greece, being insolvent, will eventually
default. That’s why the interest rate on Greek three-year government debt
recently soared past 100% and the yield on ten-year bonds is 22%, implying
that a 00 principal payable in ten years is worth less than 4 today.
Why, then, are political leaders in France and Germany trying so hard to
prevent – or, more accurately, to postpone – the inevitable? There are two
reasons.
First, the banks and other financial institutions in Germany and France have
large exposures to Greek government debt, both directly and through the
credit that they have extended to Greek and other eurozone banks. Postponing
a default gives the French and German financial institutions time to build
up their capital, reduce their exposure to Greek banks by not renewing
credit when loans come due, and sell Greek bonds to the European Central
Bank.
The second, and more important, reason for the Franco-German struggle to
postpone a Greek default is the risk that a Greek default would induce
sovereign defaults in other countries and runs on other banking systems,
particularly in Spain and Italy. This risk was highlighted by the recent
downgrade of Italy’s credit rating by Standard & Poor’s.
A default by either of those large countries would have disastrous
implications for the banks and other financial institutions in France and
Germany. The European Financial Stability Fund is large enough to cover
Greece’s financing needs but not large enough to finance Italy and Spain if
they lose access to private markets. So European politicians hope that by
showing that even Greece can avoid default, private markets will gain enough
confidence in the viability of Italy and Spain to continue lending to their
governments at reasonable rates and financing their banks.
If Greece is allowed to default in the coming weeks, financial markets will
indeed regard defaults by Spain and Italy as much more likely. That could
cause their interest rates to spike upward and their national debts to rise
rapidly, thus making them effectively insolvent. By postponing a Greek
default for two years, Europe’s politicians hope to give Spain and Italy
time to prove that they are financially viable.
Two years could allow markets to see whether Spain’s banks can handle the
decline of local real-estate prices, or whether mortgage defaults will lead
to widespread bank failures, requiring the Spanish government to finance
large deposit guarantees. The next two years would also disclose the
financial conditions of Spain’s regional governments, which have incurred
debts that are ultimately guaranteed by the central government.
Likewise, two years could provide time for Italy to demonstrate whether it
can achieve a balanced budget. The Berlusconi government recently passed a
budget bill designed to raise tax revenue and to bring the economy to a
balanced budget by 2013. That will be hard to achieve, because fiscal
tightening will reduce Italian GDP, which is now barely growing, in turn
shrinking tax revenue. So, in two years, we can expect a debate about
whether budget balance has then been achieved on a cyclically adjusted basis
. Those two years would also indicate whether Italian banks are in better
shape than many now fear.
If Spain and Italy do look sound enough at the end of two years, European
political leaders can allow Greece to default without fear of dangerous
contagion. Portugal might follow Greece in a sovereign default and in
leaving the eurozone. But the larger countries would be able to fund
themselves at reasonable interest rates, and the current eurozone system
could continue.
If, however, Spain or Italy does not persuade markets over the next two
years that they are financially sound, interest rates for their governments
and banks will rise sharply, and it will be clear that they are insolvent.
At that point, they will default. They would also be at least temporarily
unable to borrow and would be strongly tempted to leave the single currency.
But there is a greater and more immediate danger: Even if Spain and Italy
are fundamentally sound, there may not be two years to find out. The level
of Greek interest rates shows that markets believe that Greece will default
very soon. And even before that default occurs, interest rates on Spanish or
Italian debt could rise sharply, putting these countries on a financially
impossible path. The eurozone’s politicians may learn the hard way that
trying to fool markets is a dangerous strategy.
Martin Feldstein, Professor of Economics at Harvard, was Chairman of
President Ronald Reagan's Council of Economic Advisers and is former
President of the National Bureau for Economic Research.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
http://www.project-syndicate.org/commentary/feldstein40/English | o**y
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