“With recent court rulings showing how unfairly countries may be treated without an international rule of law on debt restructuring, it is becoming ever more urgent that world leaders make its creation a priority.”Making debt easier to manage will ultimately ameliorate human suffering. “If there is one lesson from Argentina’s experience, it is that debt sustainability and economic growth go hand in hand,” wrote Argentina’s ambassador in a letter this week to The New York Times. Even after navigating the murky waters of default and restructuring, the big worry is regaining trust. Almost all countries need to borrow to survive. And you need to be trusted to be able to borrow. If the Greeks default and want to start again, they will need funds. Someone will need to be willing to lend. Someone will need to trust the country. Luckily, in a democracy, re-establishing trust can be as easy as having an election. A nation is not like a person, cursed forever with a reputation. It’s reputation can change with its leadership. In the case of NSW, after it defaulted, premier Jack Lang was booted out by the governor of NSW. The new government passed laws committing it to good behaviour, and smooth sailing resumed. In Greece this can happen via a new election. Syriza, which has got Greece to this point, may have to be replaced to get Greece out the other side again. The process looks crazy. Greece will write off its debts, only to start accruing new ones. But that is the way out for Greece. It needs to free itself from the over-valued euro, from crushing debt repayments, and from grinding austerity. Only then can the natural growth capacity in the economy be re-established. That’s not to argue the above is sufficient. Greece also needs to change its ways. Tax evasion has always been a major problem in Greece, with some claiming the amount of missing tax is greater than the amount that would have been needed to pay the debts. Tax must be paid in future. But a unique opportunity exists thanks to recent advances in technology. In moving back to the drachma, Greece could move to a cashless, or near-cashless society. Cashlessness is being mooted as a potential boon for governments combatting tax fraud. If drachmas are printed, they will circulate in the black market, and that will mean the government misses out on tax. But if Greece goes cashless, it could help create an honest, functioning economy. That would be a real triumph. *Jason Murphy writes the economics blog Thomas the Think Engine.
If Greece defaults, it will join an illustrious club of debt welshers (including Australia)
Most of the world's economic powerhouses (including Australia) have been in sovereign default at one time or another, writes economist and freelance journalist Jason Murphy.