Trigger takes shape as Greece unveils bond swap and law change

I admire Fishknife's optimism and tremendous ability to write clearly, articulately, and persuasively. I also agree with many of his points. But I propose a slightly different assessment. Greece has now defaulted. It is important to have this "natural consequence" of past actions as a first step to renewal. But it would have been far better for Greece to default on its own terms: repudiate all external debt repayment indefinitely; refuse to incur any further debts (as if anybody would lend at that point anyway); and then have a tremendous internal "debate and discussion" on how to survive and emerge from the domestic crisis that ensues. My hope is that the Greeks would throw off the yoke of socialism and rediscover individual freedom. They need to do this for themselves - it cannot be administered by external parties.

Fishknife comments:
Last night’s talks may have led to “just another” deal and just another bail-out. But today is a key turning point for the eurozone crisis, and will perhaps be remembered as the start of its resolution, even if much of the good news is already priced in.

The significance is that Europe has stumbled into a messy but workable mechanism for dealing with recalcitrant over-borrowers. Despite claims that the Greece deal is a one-off, it provides a model for dealing with similar future situations.

In the long-run it doesn’t matter a great deal whether or not Greece manages to stick with the plan. The important thing is that the shameful nature of the deal permeates into the public consciousness. Eurozone citizens will gradually realise that Europe has a painful course of action it will take against their government if its debts get out of hand. Europe’s nebulous centre will seek to enforce austerity with bail-out funds locked in escrow accounts and supervisors looking over ministers’ shoulders.

This is a mechanism for default within the eurozone - something Europe’s leaders long promised could never happen. And if the public in the borrowing country rejects these measure, then their country will be forced out of the eurozone. That is something else which was supposed to be impossible.

This is positive in the long run because it should act as a long term restraint on borrowing. Previously, there was simply no sanction available, envisaged or even possible within the eurozone to restrain borrowing effectively.

The original ill-conceived eurozone bargain – which gave countries an implied guarantee of future support without any effective penalty for borrowing too much – is now over. That deal would have inevitably produced a Greece-like situation inevitable sooner or later. Now, in the long term, Europe’s sovereign default probability is reduced.