Muddle along for now, but Greek default inevitable

by John Plender

Financial Times
May 31, 2011

As European policymakers inch their painful way towards another stopgap bail-out for Greece, a high-level debate is taking place on the nature of the country’s plight.

In one corner is Otmar Issing, the respected former chief economist of the European Central Bank, who roundly declares that Greece is insolvent and will never pay its debts.

In the other sits Lorenzo Bini Smaghi, a board member of the ECB, who told the Financial Times that the country’s balance sheet was far from being a wreck.

With Greece’s debt potentially heading towards 180 per cent of gross domestic product, Mr Bini Smaghi’s position might seem Panglossian in the extreme.

But before dismissing the case out of hand, it is worth taking a careful look at the arguments advanced by those who are adamantly opposed to debt restructuring.

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