Although the return of Greece to the international bond market has been widely trumpeted as a success, the Financial Times wonders whether it is a good time for the country to default on its foreign debt. According to the paper, the Greek economy is not in recession nor is recovering but it has collapsed. The FT suggests that Greece should default on all its foreign debt and establish a new currency that would immediately devalue.
“For the first time since the crisis, Greece is in a position to default. It has a primary budget surplus – before interest payments. The European Commission has forecast the primary surplus to reach 2.7 percent of gross domestic product this year, rising to 4.1 percent in 2015. The Greek current account registered a first surplus. Greece is no longer dependent on foreign investors,” says the article’s author Wolfgang Münchau.
Concerning Greece’s return to debt markets, the FT claims that it is a “massive financial investment bubble” as “with a debt ratio projected to rise to 177 percent of GDP this year, Greece does not attract much real investment on the ground from overseas right now. Nor can it generate domestic investment because of its broken banking system.”
GDP has fallen in Greece by 23.5 percent since 2008, since when investment into the country has dropped by 58.4 percent.
Münchau asserts that no one would proceed with a long-term investment in a country with unsustainable long-run debt. The only way Greek government can attract investments is the reduce of its debt or a default.
The article states that while a default would “freak out” investors, they would soon come back. “After all, the probability of a default is lowest right after you have defaulted. At that point, a reformed Greece should be very attractive to foreign investors, not just financial investors.”