Is defaulting really 'political suicide'?

by Aditya Chakrabortty

Guardian
May 24, 2011

From George Bush to George Osborne, many stupid and disingenuous things have been said during the financial crisis. But some sort of prize really ought to go to Lorenzo Bini Smaghi.

His seat on the executive board of the European Central Bank makes Bini Smaghi one of the most important economic officials on the continent. He votes on whether interest rates in the eurozone should go up or down. He's had a hand in the bailouts to distressed nations within the single-currency club. And two weeks ago he warned the struggling Greeks: "Default or debt restructuring is a dramatic economic and social event for the country which experiences it – I would call it political 'suicide'– which leads many into poverty."

What's wrong with this argument? Well, to use a technical term, it's balls. More precisely, it's the sort of everyone-says-it-so-it-must-be-true balls that's been a hallmark of European policy-making ever since the banking crisis broke out.

When it comes to spouting conventional nonsense, Bini Smaghi has a fine pedigree. In 2007, he wrote: "The Irish example shows that it is possible to prosper in the monetary union while having a higher potential growth rate than the rest of the union." It was the spectacular wrongness of this conclusion that prompted bloggers to award the eminent central banker a new name: BS.

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