Wall Street Journal
September 20, 2011
Should they stay or should they go? Now that it's (almost) all right to admit that Greece is insolvent, the question can now be asked: When should it default, and should it stay inside the euro zone or not?
The first question is a lot easier than the second. An imminent default, rumored by some on Monday, does nobody any good. The Greek government still has a primary deficit, and can't afford to repudiate its debts while it still can't cover its outlays with tax revenues. It also has no guarantee that the European Central Bank would continue to lend against defaulted Greek debt, and would have to reckon with the risk of its banking system collapsing instantly as a result.
For the euro zone, meanwhile, the imperative has been to postpone a Greek default until Ireland and Portugal could show the rest of the world that they really are different, and that Greece really is the only insolvent country in the region. For the other two countries to save themselves by their own exertions would be the best possible answer to contagion, and a vindication of the strategy of austerity-in-return-for-support.
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