Probably the best analysis so far. Mostly, it is a recap of the past. But in talking about the pending referendum, he writes,
if the public sides with Tsipras government, then there will be a very sharp recession over the next few months. Tax collection is likely to collapse. The Tsipras government is unlikely to survive the economic collapse.
He also writes,
Greece should have defaulted in 2010. Its debt burden then was unsustainable and nothing since then has changed this. It is true that financial markets were much more jittery at that time, but the money that was raised to pay off the creditors in that bailout could have been diverted to support Greece and other weak countries. Once the bad rescue of 2010 was undertaken, it was inevitable that some form of debt relief was going to be necessary.
Imagine how different the political dynamics in Europe would have been if the German and French banks had been explicitly bailed out.
Pointer from John Cochrane (and from Greg Mankiw and James Hamilton). Of course, I think that explicit bailouts are exactly what the political system will not allow. Even going forward, I still think that “opaque bailout” is the most likely outcome. But I also think that there are some lessons for us.
1. At some point, you do run out of other people’s money (that is actually more true for us than for Greece, because we are bigger and therefore harder to bail out).
2. When you run out of other people’s money, political tensions rise considerably. See my essay Lenders and Spenders.