Originally Posted by SnerpGoodWord
The whole point of a soft money policy in a case like this is that no bailout is required. There are basically 3 options for dealing with an unpayable sovereign debt:
1) default on the bonds
2) "soft" default by devaluing the currency until the debt isn't excessive
3) borrow yet more money and kick the can down the road aka "bailout".
Of the three, history shows that #2 is the least disruptive. Greece has soft defaulted 4 or so times in the post-war, pre-Euro era. Not once did it cause any sort of Eurozone wide crisis. But by virtue of them now being on the Euro, #2 is no longer an option because Greece doesn't control the valuation of the Euro. #1 would cause massive bank failures across Europe and thus is not really an option, although Greece is happy to use it as a thread against Germany and Frace, which I heartily support for entertainment value if nothign else.
Hence #3 wins by default. In other words, bailouts are required in this case BECAUSE a hard money policy is being forced on Greece by their adoption of the Euro.
The end game has to be that Greece exits the Euro, because as you correctly imply #3 is unsustainable (especially in Italy's case) and the other options are unacceptable as long as Greece is a member of the monetary union.
Thanks for this elaboration, Snerp. I couldn't help but chuckle at the idea of Greece using possible default as a threat against Germany and France as "entertainment value." Classic.
Otherwise, I can't help but be curious about how Greece's adoption of the Euro is called a "hard money policy." I presume it's called such, because Greece has no means to inflate or deflate it, but I find it ironic, in that the Euro, which is not a metals-based currency, can hardly be called "hard money."