As the situation in Greece unfolds, it's easy to believe that the country will soon be forced into default much like an illiquid and/or insolvent company would be under similar circumstances. The Greek leadership will simply get up one day to discover that
its checks from the day before have bounced. It will then have no choice but to march down to the local courthouse with bankruptcy petition in hand.
Yet the reality is that countries don't go broke in the same sense that a firm or a company might. They don't go out of business, in other words, as they can generally repay foreign creditors given enough pain and suffering on the domestic front. The decision turns instead on a country's willingness to pay and not its ability to do so. Lest you have any doubts, according to data compiled by Carmen Reinhart and Kenneth Rogoff for the study "This Time is Different," more than half of defaults by middle-income countries between 1970 and 2008 occurred when the afflicted country's debt service payments were handily sustainable.
So why do countries choose to default when they could otherwise pay off their debts? The answer is simple: It's easier to. Read the rest at
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