The ‘Grexit’ Issue and the Problem of Free Trade | Stratfor

By George Friedman

The Greek crisis is moving toward a climax. The issue is actually quite simple. The Greek government owes a great deal of money to European institutions and the International Monetary Fund. It has accumulated this debt over time, but it has become increasingly difficult for Greece to meet its payments. If Greece doesn’t meet these payments, the IMF and European institutions have said they will not extend any more loans to Greece. Greece must make a calculation. If it pays the loans on time and receives additional funding, will it be better off than not paying the loans and being cut off from more?

Obviously, the question is more complex. It is not clear that if the Greeks refuse to pay, they will be cut off from further loans. First, the other side might be bluffing, as it has in the past. Second, if they do pay the next round, and they do get the next tranche of funding, is this simply kicking the can down the road? Does it solveGreece’s underlying problem, which is that its debt structure is unsustainable? In a world that contains Argentina and American Airlines, we have learned that bankruptcy and lack of access to credit markets do not necessarily go hand in hand.

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via The ‘Grexit’ Issue and the Problem of Free Trade | Stratfor.

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