I believe they would have to leave the Euro and return to a national currency. But that is certainly a better prospect than the austerity project Germany and France are wishing upon them.
Not so fast: Greek "prosperity" for the last decade has largely rested on indirect transfers due to being able to borrow at "German" interest rates, which they did with abandon.
So Greece was able to spend way beyond what they produced.
For a while.
There was never any way this could go on indefinitely, spending had to come down at some point, because you can't spend more than you take in in the long run - so called "austerity". And that's even without taking into account that you usually have to pay back debts.
The fact that this hits the little people rather than the tax-avoiders at the top is an internal Greek problem.
Although they should not have been admitted to the Euro, leaving it now would not improve things: their debt is valued in Euro, so if they return to the Drachma and then devalue their currency, their debt goes up even more!
Of course, they should never have been admitted to Euro, and it turns out that the so-called Euro crisis (which is yet another banking crisis) was precipitated by Goldman Sachs letting slip that there was "something fishy" with Greece.
How did Goldman Sachs know this? They were the ones who had cooked the books for the Greek government in order to gain entry to the Euro.
IMHO, the EU should seize Goldman Sachs assets in order to pay for the Greek bailouts.
Note. That's a technical default or externally-led debt restructuring. It is not within full control of the Greek state as it would be under its own currency.
For example, a price for remaining within the Eurozone was for ensuring none of the ECB's large Greek bond holdings (approx. EUR 50bn), now or in future, will be exposed to enforced losses. This has always been politically understood.
The former. There was no mechanism to allow someone to leave the Euro - it just was never an option and the "coherence" of the system depends on this not happening. So, once you permit a member to do so, the whole Euro system becomes precarious, to say the least.
The drive for greater fiscal union, a common regulatory authority, etc, that we see now is an attempt to fix such issues - ie having so much control that these defaults never happen.
Please excuse me while I try to suppress my cynicism.
"The former. There was no mechanism to allow someone to leave the Euro"
Hmm...this is once again conflating defaulting with leaving the Euro. From the article you cited:
"Actually, a second [default], as Greece technically defaulted on its debts when it renegotiated a 50% write-off of its debts with its creditors earlier this year."
So Greece has defaulted, but they haven't left the Euro.
"The drive for greater fiscal union, a common regulatory authority, etc, that we see now is an attempt to fix such issues - ie having so much control that these defaults never happen."
I would say: "...that this sort of debt-binge on someone else's dime can't happen."
If you have a common currency, you also need these other mechanisms. It wasn't politically feasible to get this at the time, so the Euro was used as a "forcing function". Once you had the Euro, there really wasn't a way around more common financial control.
Greece is paying, as Italy and Ireland are doing. Not sure for how long and what will happen, though. Whenever, back in history, populations are pissed off the hard way for reasons they are not accountable for or not even understand, bad things happen. I don't know what's the feeling up in Ireland, but for what I see in Italy and Greece, there will be sooner or later a breaking point.
Sorry but the people are the reason Greece/Italy are in the mess they are in. Tax evasion and corruption is rampant at all levels especially amongst the rich. Many in Europe believe that the people are simply getting what they deserved.
Tax evasion was basically 100%. Sure, it's easy to say "I'm only cheating a little, blame the big cheaters" but everybody was in on it. The ones paying for it chose to be unaware of what was happening.
Yes, as far as I know this is correct. In fact, reports by the monitors said that there wasn't even a capability to actually collect taxes in the tax collecting agencies, apart from no willingness and no real idea of how/why.
The people to blame are the ones who got Greece into the Euro in the first place. If they had stayed on a sovereign currency they would, almost definitely, have a lower GDP than they did on the Euro, but:
* They wouldn't have as much of an external debt problem.
* Their ability to export and attract foreign investment would be much better.
