Financial Times
July 1, 2011
Give the eurozone authorities credit for historical timing, at least. It was June 2001 when Argentina, struggling with a sovereign debt burden, doubled down on a losing bet by executing a giant voluntary bond swap to push off repayment to the future. Six months later, it crashed into the biggest sovereign default in history.
Ten years later to the month, Greece is threatening a new record for government bankruptcy. A plan has emerged, originally from Paris, to buy time by persuading the owners of Greek bonds to roll over their holdings. The plan’s viability – and final details – remain to be seen. But one thing is clear: addressing a solvency crisis with a series of short-term liquidity fixes neither solves the problem nor invites confidence in those tackling it.
Even without comparing crises, the Greece-Argentina parallels are obvious. Narrow self-reinforcing political elite? Yep. Chronic growth-sapping corruption? Check. Public finance incontinence? Got it. Culture of tax evasion? Our speciality.
Now, countries do not have to be bound by their pasts. A year after Argentina’s chaotic default, a centre-left government in Brazil, a country with its own unhappy history of instability, faced down investor panic with a programme of fiscal orthodoxy backed by the International Monetary Fund. But in some respects those handling Greece are replicating the Argentine crisis. One, there are grave doubts over its depth of determination to take difficult actions. Two, the eurozone-led rescue mission eschews not just a substantial restructuring of sovereign debt but even holding a sensible conversation about it.
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