Thursday, April 29, 2010

Feldstein: Greece is Insolvent and Will Default; Bailout May Work For A While Only

This is getting a little repetitive. Martin Feldstein, professor of economics at Harvard, and Chairman of President Ronald Reagan's Council of Economic Advisors and President of the National Bureau for Economic Research, has added to the chorus of bright people saying that Greece is insolvent.

In an article today at project-syndicate, Feldstein wrote that Greece will eventually have to default on its bonds because it will not be possible to cut its budget deficit below the European Union limits.

He says there simply is no way around the arithmetic implied by the scale of deficit reduction and the accompanying economic decline "Greece’s default on its debt is inevitable,”

He added that Greece could choose to service existing debt with new debt rather than pay cash or it could also allow restructuring of its debt.

The current European bailout plan may work for a while, but the euro region and Greek bondholders will have to accept that the country is insolvent and cannot service its existing debt.

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