Greece: Dead End or Fresh Start?

06/30/2015 03:51 pm ET | Updated Jun 29, 2016

For five years Greece has been subjected to a regime of totally inappropriate austerity. As a result, for five years its poverty and misery have increased along with its impossibly large debt burden. And for all that time many investors and observers have realized the obvious fact that Greece could not pay off its debts. The only reasonable course of action has been and still is for the lenders to recognize these facts and reverse their destructive insistence on austerity. A less tranquil alternative has been for Greece itself to simply refuse to pay. In effect that has now happened.

These events are not likely to lead to a widespread financial or economic collapse. The falling dominoes that rapidly linked one default to the next after the failures of Lehman Brothers and the insurance company AIG in 2008, are unlikely because Greece defaulting is not a surprise and almost all of its debt is owed to the same Troika of austerity taskmasters which has caused this unhappy mess: the European Union Commission, the European Central Bank and the International Monetary Fund. These institutions do not have nervous stock owners or bondholders or bank lenders or depositors. They are capitalized by governments.

Indeed it is quite possible that, if Greece leaves the Eurozone and is essentially debt-free and Troika-free, it will resume healthy economic growth after a painful period of adjustment. And it is also possible that in such a case other peripheral countries like Spain and Portugal, and even countries with lower debt burdens like Italy and France might also choose to leave the Euro. In which case all countries that leave may be rewarded with stronger economies and all the countries that remain may maintain a healthier Eurozone with a stronger currency.