Greece may look at Argentina and wonder if it shouldn't just default. After all, Argentina reneged on $81bn of sovereign debt in 2002. For a while the economy tanked but then followed many years of 8% growth. Even in the credit crunch it scraped through with around 1% and the following year it rebounded 9%, more than just about any other economy. Is the Argentina model a desirable one for Greece to follow? Don't forget that the Argentine default was accompanied by a 75% devaluation of the peso. This left the country hugely competitive relative to its neighbours and other big exporters. Also the Argentine collapse was a slow-motion affair. Investors could see it coming for a long time so by the time it happened the event caused very little contagion. Greece also has a pegged currency and has also been imploding for some time but a huge devaluation like Argentina's would cause both significant damage to Greece but also collateral damage to a number of other Eurozone economies. Its debt is a multiple of Argentina's. The key is once again, the banking sector. Banks are leveraged and the multiples involved in the Eurozone periphery coutries are breath-taking, relative to their capital. Greece has to be let down over many years. See my article: http://www.businessday.co.za/Articles/Content.aspx?id=149092 The QSL is from Radio Buenos Aires, heard in Joburg on 1350 AM in 1987.
Monday 25 July 2011
The As and Bs of Athens to Buenos Aires
Greece may look at Argentina and wonder if it shouldn't just default. After all, Argentina reneged on $81bn of sovereign debt in 2002. For a while the economy tanked but then followed many years of 8% growth. Even in the credit crunch it scraped through with around 1% and the following year it rebounded 9%, more than just about any other economy. Is the Argentina model a desirable one for Greece to follow? Don't forget that the Argentine default was accompanied by a 75% devaluation of the peso. This left the country hugely competitive relative to its neighbours and other big exporters. Also the Argentine collapse was a slow-motion affair. Investors could see it coming for a long time so by the time it happened the event caused very little contagion. Greece also has a pegged currency and has also been imploding for some time but a huge devaluation like Argentina's would cause both significant damage to Greece but also collateral damage to a number of other Eurozone economies. Its debt is a multiple of Argentina's. The key is once again, the banking sector. Banks are leveraged and the multiples involved in the Eurozone periphery coutries are breath-taking, relative to their capital. Greece has to be let down over many years. See my article: http://www.businessday.co.za/Articles/Content.aspx?id=149092 The QSL is from Radio Buenos Aires, heard in Joburg on 1350 AM in 1987.
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