In western society, contracts are considered sacred and the violator of the contract is considered to be the wrongful party. In cases of default, therefore, the defaulter is always seen as someone who has failed to live up to her contractual obligation. In times past, the defaulter’s moral character was in question. So the concept of letting these people off the hook in some way when they have been ‘defective’ in some way in conduct strikes a lot of people as unfair, undermining the entire ethos of a contract law based society. This whole law and attendant psychological apparatus of where moral obligations lie is well-entrenched in our society and a big reason to doubt that debt forgiveness can happen unless we are deep in a Depression.

It is now clear to me that the breathtaking incompetence and the disastrous state of affairs in Greece is solely of Greece’s doing. And that the political elites in Greece that are shepherding the country through this very difficult time realizes that Greece has no choice but to rebuild its system from the ground up. Even if Greece defaulted, exited the Eurozone, and resorted to the Drachma it would, in fact, be back to square one, except this time without the advantage of being part of the Eurozone.

Any Greek politician with any intelligence is using this crisis in Greece to impose wide ranging reforms that are desperately needed to turn it into a viable and functioning economy. If Greece takes the least path of resistance and exit’s the Eurozone it will turn the country into a third world country with absolutely no prospects for pulling itself out of the mire of their own making.

Any Greek sensible enough to realize this will realize that the savage reforms that they are going through are absolutely necessary and will take a decade or more to achieve. They will also realize that Greece has no other alternatives. For this reason alone I believe the Greeks will stay in the Eurozone. To leave is slow motion suicide.

One cannot successfully introduce a weaker currency over a stronger one, without very heavy policing, and enforcement. No-one would willingly accept it. Commerce would be paralyzed. So it is a practical necessity to introduce a stronger (strong enough) currency.

But what Greek currency would be stronger than the Euro? Logic demands therefore that the process of devaluation and adjustment must precede the new currencies introduction.

So the process of devaluation and adjustment must be inside the introducing legislation. Bear with me here…

If the process of devaluation and readjustment could possibly be inside the enabling legislation – there would be no further need to change the currency. There would be no problem left for that currency to solve.

Having caged the tiger there is no longer any need to shoot it.

It is not only impractical to leave the Euro it is is unnecessary. If you could do it, you wouldn’t.

Just a random thought.

I think there is a mentality in America that does not agree with debt forgiveness for borrowers that may not be worthy of debt forgiveness when a current mortgage payee has made all the right moves. I think this is either an understated or an overlooked aspect of blog generality of housing problems. I know it’s there, but I’m just saying int the aggregate circles no one touches it outside of “strategic default”.

Despite that fact, I think this plays a major role in our political process. I think the people “playing by the rules” are a concern in the final agreements we see.

My random thought, is that given how great our fiscal nation is and how we can use fiscal policy as a means to an end because we’re in a fiscal union, is there not an underlying similarity to Europe. America my handle it’s difference better because there is financial and legal infrastructure, but are the conflicts that different? Do we not still suffer from the same human tendencies of I don’t want to pay for you and you don’t want to pay for me?

Politically, a home buyer bailout is a hot potato because some home buyers are current and some are not. Add to that some people don’t own homes and even some not chose to buy for all the right reasons and you get the EU minus the currency.

Sorry to add this one, as this has dragged on, but I have read so many comments about how the Euro has prevented the currency to adjust, but no one presents that old adjustment mechanism of gold leaving the country as an “automatic stabilizer”. It’s not like a floating currency is the only mechanism. The reason a floating currency worked is the same reason a gold standard worked. Only when the standard was pegged was when it went wrong.

Scott