Koo: "Greece Is Not Argentina"
So far, every iteration of the trite, overused and cliched "X is not Y" has meant to generate confidence, when all it really does is inspire laughter. Today we get Nomura's stimulus advocate Richard Koo giving a different spin on the "Greece is not Argentina" perspective. "It should now be obvious that it is reckless to argue that since Argentina successfully defaulted on its debt, so can Greece. While the probability of success is not zero, I suspect the associated costs would be significantly greater than what Argentina experienced. That it took Argentina more than two years to restore real GDP to pre-default levels despite having its own currency suggests that it would take Greece substantially longer. This means Greece faces several years of extremely painful adjustments no matter which path it takes. It is simply not the case that everything will be all right if Greece just defaults and leaves the euro." His conclusion: "I have previously noted that the current euro problems are attributable to the fact that the designers of the eurozone forgot to enact one rule when they introduced the common currency—namely, a regulation stating that member countries can sell government debt only to their own people. Had this rule been adopted ten years ago, the current problems in Greece and Portugal would never have happened." Supposedly this is predicated by the sterling example of Japan's 200% debt/GDP being indicative of how a ridiculous debt load can be spun as a good thing. We would like to add our own contribution: "Koo's version of Japan is not reality's version of Japan." But just like in Europe, this will also take time to be processed by the market.
The strategist's latest note in full:
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