[zzleeper]

True, but on the Greek case a lot of that money was used in transfers to voters to prop up their income (pensions, early retirement, unemployment benefits, etc.)

In a way, most of the austerity discussion is a red herring. The key problem is not whether to raise sales tax by 1% or not. The real reforms are raising the retirement age, liberalizing labor markets, fixing their IRS, etc.

If you condone debt without reforms then Greece will be back to panhandling five years from now. Since I really doubt they will be able to pull of the reforms (after 20 years of not doing so), the only sane option seems an orderly default + Grexit. Sure, you'll likely have 6 months of crisis and a loss of confidence in the EU, but it's not going to be the end of the World...

[anigbrowl]

I totally agree with you, but I think the rest of Europe is looking for a quick fix that doesn't exist. The problem has accumulated over generations and we should be taking an approach that is designed to work out over a similar timescale, like the restructuring of German war debt in 1953 (in contrast to the self-defeating hard-line approach on WW1 reparations following the Treaty of Versailles).

only sane option seems an orderly default + Grexit. Sure, you'll likely have 6 months of crisis and a loss of confidence in the EU, but it's not going to be the end of the World...

I honestly think it would be the end of the European project within 1-2 decades. I am no Eurosceptic - on the contrary I've always felt very proud to be an EU citizen and been a supporter of full-on political political union and a fully federal Europe. If you'll forgive me quoting myself from another thread, I think a Grexit is like trying to deal with the pain of a hangover by amputating one's own head. Greece is the cradle of western civilization - philosophically, linguistically an in many other respects.

The political payload of a Grexit would be a tacit admission that capitalist/mercantilist considerations trump those of citizenship or political identity. I agree completely that we can't solve the problem by just writing off debt, as we'd be back in the same place in a few years. But nor can we solve it by opting for Grexit + drachma + devaluation, ie throwing up our hands at the fiscal problem and switching to monetarist tricks instead.

The EU has to stand for something deeper than a set of accounting principles, or it can't stand at all.