Kenneth Rogoff in Project Syndicate:
Already facing sluggish growth before fiscal austerity set in, the so-called “PIGS” (Portugal, Ireland, Greece, and Spain) face the prospect of a “lost decade” much as Latin America experienced in the 1980’s. Latin America’s rebirth and modern growth dynamic really only began to unfold after the 1987 “Brady plan” orchestrated massive debt write-downs across the region. Surely, a similar restructuring is the most plausible scenario in Europe as well.
It sometimes seems that the only eurozone leader who is willing to face the likely prospect of future debt restructuring is German Chancellor Angela Merkel. The Germans have been widely castigated for pointing out that Europe has no clear mechanism for sorting out sovereign (government) defaults, and that surely it needs one. Many pundits would have one believe that Ireland would have pulled through unscathed absent Germany’s blundering statements.
That is nonsense. With huge private debts, falling house prices, and external claims on Ireland amounting to more than 10 times national income (according to the Reinhart-Rogoff database), there was never going to be an easy way out. Allowing European debt problems to fester and grow by sweeping them under the carpet through dubious theatrics can only make those problems worse.