Mark my words: the day will come when the EU will bitterly regret having offered Greece a haircut and, more importantly, the day will come when Greeks will condemn their leaders for having accepted a haircut. Let’s not worry about the EU’s problems here. Let’s worry about Greece’s future regrets.
To be able to say that “Greece has always honored all her debts and will do so in the future” is of incredible value for the future of an economy. Greece will for many, many years depend on funding from abroad, be that foreign loans or foreign investment. The stain of once not having honored all her debts would cause incredible damage for the future; for the economy as well as for the Greek people.
Every time in the future when Greece needs funding from abroad, she will feel the sentiment of “oh, you are the country which once had to be forgiven part of its debt; how do we know that this won’t happen again?”
Every time new generations of Greeks want to impress foreigners with their achievements, they will feel the sentiment of “yeah, but aren’t you the country which had to be forgiven a couple of hundred billion EUR because you wasted that money without ever having done anything to earn it?”
If Greece were a country in extreme national poverty without any potential, things would be different because no one would ever question later on whether or not it was right to have made a haircut.
But large parts of Greek society are well situated and can enjoy a good standard of living (a small part of Greek society is even better situated than their counterparts in Central Europe and they enjoy a much higher standard of living). That will forever be reason enough that Greeks will bear the stain of having needed a haircut in order to live well.
Such a stain cannot be shed for decades and/or generations, if ever!
Greece’s debt must not be repaid (because it can’t be today) and it must not be forgiven (because of the above reasons). Greece’s debt must be “regularized”, that is it must be orderly structured. No public borrower ever avoided bankruptcy by repaying its debt. They avoided bankruptcy by succeeding with an orderly structuring (or rather: re-structuring) of their debts (see NYC a few decades ago; see California a few years ago; see Latin American countries; etc.).
If Greece has, say, 150 billion EUR more debt than she can presently service, the solution is NOT to forgive that amount. The solution is to reschedule the maturity of this amount out to 30 years (or even more) and to capitalize interest. That way, Greece has no expense for the service of that debt during this time but she can continue to claim that “we have always honored our debts in full and we will continue to do so!”