Letter: Defaults needed

PETER Jones is certainly right that there are dangers inherent in the "lend and pretend" solution to the Greek debt crisis (Perspective, 31 May).

Indeed, with Greece's debt at 150 per cent of national GDP and the markets wanting nearly 17 per cent per annum to take on ten-year bonds, viewed objectively, Greece is bankrupt.

Mr Jones argues that there is no alternative but to lend further money to Greece at subsidised interest rates, because European banks are heavily exposed to Greek sovereign debt, and because should Greece openly default then in due course Ireland will follow suit, and British banks have a 140 billion exposure to Irish debt, which the UK government cannot afford to underwrite.

In theory, stringent conditions will be attached to this new lending. However, given how many Greeks behaved last year, their government can expect very serious disorder if it attempts to honour them.

All this mess follows inevitably from the political decision to let countries, such as Greece, join the euro despite their economies being entirely out of step with those of the European core.

The wisest way forward is to recognise what the markets are telling us through the bond yields: Greece, Ireland and Portugal should not be in the euro. Each of these countries should default on their debts and reissue a national currency.

The rebound of the Icelandic economy has shown there will be a future after such default.

Otto Inglis

Inveralmond Grove

Edinburgh