[dageshi]

The rest of europe bailed out Greece due to forced self interest, they shared the same currency and effectively the same banking system, had they not bailed out Greece the repercussions would have found their way back to all the other countries inside the eurozone in short order.

If you share the same currency and banking system you end up being responsible for each others debts whether you liked it or agreed to it in the first place, the "NO BAILOUT" clause was effectively worthless and irrelevant.

[Atropos]

That may be the official US/UK media narrative, but it is nonsense to anyone who looks at the underlying data. Do you realize that a restructuring of Greece debt has already happened with Greece private creditors incurring around 53.5% face value losses? And guess what - the Eurozone is fine. Furthermore Greece GDP and banking is tiny compared to the Eurozone. Does sharing the same currency mean that mean that the USA is forced to bail out the city of Detroit?

If the mantra "Same currency - responsible for all debts" was true, it would be impossible to explain why the yields of German/Austrian/Finnish bonds are trading at a vastly different level than the Italien/Spanish/Portuguese etc... bonds!

[jpollock]

It's not about Greece, it's about Greece, Spain, Portugal and Italy and then possibly France.

[dageshi]

It was the precedent that mattered not the size of the Greek economy, in the same way that the size of Lehman brothers in the US didn't matter individually but the precedent that the US government would no longer write blank cheques to bailout failing institutions did. With Greece the precedent was set that what "NO BAILOUT" actually meant was "NO BAILOUT" if the problem is small enough to not impact anyone else.

[waps]

I think the big elephant in the room argument is right. They legislated their debt out of existence, and ... the market didn't care.

So the US can do the same, with the same result. Declare all US debt/treasuries to only have 50% of the nominal value. Immediate result : large drop, followed by recovery. Longer-term result : nothing.

So the Cyprus and Greece crises made this a valid policy option. It doesn't look like it will be necessary any time soon, but it has gone from inconceivable to "will happen at some point in the future".

The market doesn't actually want you to pay back your debt. They care, but not enough for real consequences for the debtor. Why ? Simple : there's no other place to put money if you have very low interest rates everywhere.

[pessimizer]

>it would be impossible to explain why the yields of German/Austrian/Finnish bonds are trading at a vastly different level than the Italien/Spanish/Portuguese etc... bonds!

Only if one doesn't understand the difference between a debtor and a lender. The common currency helps the core, and hurts the periphery. Where's the contradiction?

[james1071]

I think you have got that the wrong way round. The best option for Greece was to default, but instead Greece was sacrificed to save the Euro.