If Greek debt had been denominated in Greek drachmas, its currency would have plunged in value when the Greek crisis unfolded. A lower currency would have helped some Greek exporters and brought in bargain-seeking foreign tourists.
That would not have solved Greece’s fundamental problems, which include a bloated government payroll and immense tax evasion, but it would not have caused the depression that the country is still in.Instead, the debt was in euros. Unable to print them, or to borrow more from suddenly fearful credit markets, Greece turned to the rest of Europe for a bailout that came with harsh terms.
The issue of which nation’s law prevailed was also important. Most Greek bonds had been issued under Greek law. Greece could, and did, change that law and force bondholders to exchange their bonds for new ones worth far less. But some of the bonds were issued under foreign law, and those bondholders could not be forced to give in. There were not that many such bonds outstanding, and in the end Greece continued to meet those obligations. In the summer of 2012, one such bond traded for 14 cents on the euro. Today it trades for 90 cents.
Read more at NYT.
Read more at NYT.