Why Greece Should Default on Debt and Leave the Euro

Greece should default on its debt and leave the euro currency if it wants to have a chance at prospering in the coming decade. (This goes for other Eurozone countries in a similar situation).

Defaulting means Greece owes less money. Not defaulting and getting more loans – as Greece is doing right now – means it owes more money.

Owing more money, of course, puts Greece under the thumb of its creditors and stifles its ability to create a better future for itself.

The argument against defaulting is that there are consequences. The benefits of defaulting, however, outweigh the consequences.

Capital markets almost never permanently exclude sovereigns who have defaulted; any consequence or punishment is usually exacted in the form of charging higher borrowing rates.

The rates, however, depend more on current economic strength and inflation expectations than on past history, which is why Greece should make its economic vitality the priority.

The other possible punishment is trade sanction from Europe. However, they aren’t likely to be vindictive enough to offset the benefits, especially those of leaving the euro.

Greece needs to leave the euro.

In the years leading up its debt crisis, Greece spent too much money. Now, it needs to spend less and give (repay and export) more.

The most efficient way to accomplish that is through currency devaluation, which it can’t do if it keeps the euro.

History has shown the tried and true formula for recovering from a national debt glut: a combination of default and devaluation.

Given the nature of Greece’s debt problem, it needs to do both.

If Greece keeps on tacking on more debt and staying with the euro currency – as it is currently doing – it will be stuck in an indefinite stagnation and serfdom under the domination of core Europe. It won’t move forward and begin a new chapter in its economic history.

It’s time for Greece to move forward in the boom-and-bust economic cycle. The longer it waits, the longer it will have to suffer.

Email Hao Li at hao.li@ibtimes.com.