Other EU countries’ interests in Greece

I’m again looking for a silver lining to the Greek debt crisis. People seem to be making a big deal about the fall of the Euro, but is this really so bad? For all the talk I hear about countries wanting to export their way out of economic difficulty, devaluation seems like the ticket. Are countries which are dependent on exports really going to be that upset if a Greek default leads to an even more devalued Euro?

Looking at the distribution of Greek debt, it may be that France and Germany have more interest in preventing a default than in a devaluation, but who knows. If the default results even in a 50% haircut, how much of that could be recouped through enhanced exports. A further question I have is whether France and Germany would rather pour more money into Greece in the hopes of bailing them out, or simply to bail out their own banks if Greece in fact defaults.

Even using the high estimate of debt owed to the Eurozone banks, doesn’t it just make more sense to let the Greeks default and then simply use the bail out money to bail out banks instead of Greece? If the only consequence of a Greek default is a loss in value for the Euro, and potentially more instability in the other PIIGS countries, this doesn’t seem like a real problem. Especially when voters in those countries seem very opposed to helping Greece out of problems it created for its self. A devalued Euro would also encourage more intra union trade as local products would become more competitive as the cost of imports rise.

Greece is restored to some sort of sustainable debt burden. Good money which would have been thrown after bad is instead used to recapitalize Euro banks with the governments taking a share. If need be, the Eurozone can offer Greece concessionary loans if they can’t get the additional financing they need from international markets.

I think in the end what we will see is a bailout of Euro banks as opposed to the Greek government.