If there's one thing economists don't like, it's politics. We can draw up any number of fantastic policies on paper, but getting them through legislatures and central bank committees is another story. Politics has been a big part of the problem in Greece. Not only are the politicians there incapable of choosing a way out of the fiscal crisis they created; they can't even form a government. But what if economists were in charge?
With politicians pushed aside, economists could offer at least five paths, some of them not mutually exclusive, out of Greece's current straits. Here's how they would work.
1. Default officially. Greek bonds have been trading at huge discounts for months now, and negotiations to reduce the Greek government's debts have been running non-stop behind the scenes. Puzzlingly, however, the government has continued to pay all the interest owed to select groups of creditors. An official default would allow Greece to go through a more orderly sort of bankruptcy process, determining the "seniority" of various claims -- basically, which ones get paid first -- and then negotiating with creditors while payments remained frozen. Afterward, Greece would have a hard time borrowing from global credit markets for some time, perhaps several years. Its leaders would have to form a durable government, which in turn would have to demonstrate the ability to spend responsibly in order to win back the markets' confidence.
Sounds tough -- but by no means impossible. Many countries in Latin America managed to return to global credit markets within a few years of defaults in the 1980s and 1990s. Others have taken their time. Argentina has had a rocky relationship with its creditors since defaulting on its debts in 2001, and recent discussions about returning to the markets have been soured by the renationalization of energy company YPF and fears about inflation and budget deficits. Of course, Argentina's commodity wealth has allowed the country to grow quickly without the markets' help for a decade since the crisis; resource-poor Greece might not be so lucky.