Michael Pettis has a very interesting article on the Spanish news site ABC regarding a possible default of Spain and the eventual breakup of the eurozone.
Pettis Three Ways
His article El exceso de deuda impide el crecimiento in Spanish. His article Debt Overhang Prevents Growth as translated by Google. His article Excess Debt Hampers Growth as translated by Microsoft Bing (Much, much slower than Google translation). I used both translators in a verification process. What follows is my heavily modified translation of key portions of Pettis’ article after reading both of the above translations.
In the Panic of 1837, two-thirds of the US, including several of the richest states, suspended payment of external debt. The United States survived. If the European Union is to survive, it will have to find a solution to the European debt.
The more hope instead of action, the more likely there’s a permanent breakdown of the euro and the European Union.
In a gesture more of faith than economic or historical data, Madrid assures us that with the right reforms, it will eventually be able to get out of debt.
Other countries in debt crises have made the same promise, but the promise is rarely fulfilled. Excessive debt itself impedes growth. Even without the straitjacket of the euro, Spain probably cannot afford its debt.
This post was published at Global Economic Analysis on November 19, 2014.
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