I believe that the Greek economy is a tumor in the EU economy. I don’t believe all of the EU is as sick and I don’t think we should bail Greece out. Instead for their own good and ours we should let Greeks go back to their old currency, devalue and default. Then we should focus on saving the banks (but not the shareholders of the banks) who lent money to Greece or bought their bonds.

Now what confuses people is that they think that sovereign default means a country not paying its debts at all. That is not really how it generally works. What we saw with Argentina for example is that a substantial part of the debt was paid. And this will be the case of Greece. They will probably end up paying 60% of their debt. That’s what they need to move on. Not a debt forgiveness but a significant debt reduction to say the levels of Portugal, Italy and Spain or around 1 time GDP (Spain is less but it’s getting there). Now interestingly I tried to find out how much Greek sovereign debt was trading for and it is trading for around half of its value. So the markets also believe Greece will default but pay half of its debt.

Follow Martin Varsavsky on Twitter: twitter.com/martinvars

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Julien Denoyer on September 21, 2011  · 

All I know is that we keep hearing every single day how Greece is hurting Europe, then how Europe is hurting the US, then how the US is hurting ASIA and so on…it’s kind of getting our of hand. I agree in that we should let Greece go back to its own currency and not seek a bailout every couple of months. At the end of the day, politicians there have no clue what they are doing and people don’t won’t to make efforts either (thinking Europe will support their lifestyle)…Italy and Spain aren’t any different…France also spends too much on social programs. Let’s get back to work and make Europe strong again and not waste money on idiotic things like Ciudad Real’s International Airport (http://blogs.elpais.com/paco-nadal/2011/09/ponga-una-aeropuerto-en-su-casa-o-la-paranoia-de-un-pais-enloquecido.html)…

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Juan Pablo Garcia on September 30, 2011  · 

Hi Martin:
Nice post! As an argentinian living in Spain I mostly agree with that vision from who comes from the perpetual lab that country is for the nightmares the rest of the world finally arrives to. But, what about Spain’s private debt? The real one is not 1xGDP but almost 4x adding the private sector.

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