I’m not intimately familiar with the details of Greek public finance, but it does occur to me that sage words I keep reading in the American press about how Europe’s leaders can’t just keep kicking the can down the road and need to deal with Greece’s basic insolvency strike me as unwarranted. In general, the capacity of large wealthy societies to allow festering problems to go un-addressed seems perennially underrated. I’ll be thirty next week and for as long as I can remember people have been talking about how the United States needs to address entitlement spending and trade imbalances. And as best I can tell, we do need to address those things. Presumably at some point something will happen. But in practice we’ve managed a great deal of can-kicking, seem to have more can-kicking in us, and actually the public and the political elite alike are quite averse to the kind of steps that would address these issues.
Is Greece so different? Its output is, what, 2-3 percent of the total EU economy. As long as the money is owed to banks (rather than households who immediately need the money) that can be protected by complicit regulators, it doesn’t seem mathematically implausible to do a great deal of extend and pretend. You may need some accounting gimmicks to make this work, but I don’t think it’s clear that the problem really has to be addressed unless true insolvency expands to bigger countries.