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Sticking with the international theme, I found this article to be quite interesting. If Greece gets bailed out, the experts seem to think that Portugal will be the next to default, followed by Spain. If Greece gets bailed out, why not Portugal? If Greece does default and then Portugal does, could there be a chain reaction? What are the consequences of the Euro? I think it could end up being a chain reaction of bailouts. When do we let a country simple go under and default?
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I think there could definitely be a chain reaction if Greece defaults. By providing Greece with bailout money the EU sets a precedent for what it will do in these situations. While the money needed to bail out Greece and Portugal is relatively small it hurts the European economy and increases skepticism from abroad. I think Spain is the real problem since it is one of the largest countries in the EU and I loved the quote at the end of the article, "if Spain catches the default virus, it has the potential to become too big to fail, but too sick to cure."
ReplyDeleteI also loved that quote. From This Time is Different we learned that it is very probable that debt will continue to "spill over" so it definitely is a real threat. I think we really need to consider the consequences of bailing out Greece and decide if they are willing to make the reforms needed to succeed and not default again...soon.
ReplyDeleteI do not think that any country in the EU will let anyone simply default and go under because it risks the entire EU. So I imagine they will keep trying to bailout each other until they run out of funds and then they will look to the IMF and the United States to help everyone out. But if they choose to let one country go under it will set off a chain reaction that will be devastating to Europe.
ReplyDeleteI think the key is to add some strict stipulations to Greece's money. They should not be happy they got bailed out. That way Portugal will have a difficult decision and will try not to take bailout money. I'm not saying we should punish Greece but the stipulations should force them to restructure their governing system in significant way.
ReplyDeleteI also agree with Jared, the Eurozone can't handle a sovereign default among their ranks so they won't let that happen. The money will be made available if it is really needed.
I guess I'm just not understanding why it would be so bad for a country in the EU, like Greece, to default. From This Time is Different, it looked like many countries had gone through default at one point or another. Even if Greece were to be bailed out, it's not certain that there will be enough money for Portugal or Spain. So would it really be that bad then for a country to default?
ReplyDeleteIt is interesting point that Dana makes. We could let Greece default if we thought there was no way to keep them afloat without hurting other countries and the euro and then save Portugal or Spain. However, I think if we can save a country from default then we should. Although we see eventual strong recovery based off of statistics in later years after a recession I do not think it would be healthy for the euro and for other European countries to see them default. There are some positive signs and positive signs with the U.S. so if we can prevent them from default I think we have good times ahead. The long periods of unemployment and regulation after default are not healthy and cost-heavy...
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