What will happen with Greece?

Here is my latest NYT column, excerpt:

If you are a euro optimist, you might believe that the day of reckoning for Greece will be stalled long enough for Portugal, Ireland, Spain and possibly Italy and Belgium to recapitalize their banks and trim their government budgets. You might believe that of the Greeks will eventually default, but that by the time the contagion effects are checked, the Greeks will have pulled in some aid, and the global impact will be a mere hiccup instead of a new financial crisis. But that still will leave Greece with no clear economic path forward. For a best-case scenario, that’s not very good.

If you are a pessimist, you might see such a response as an unworkable plan of naïve technocrats. Here’s your line of reasoning: At some point along the way, democracy is likely to intervene: either Greek voters will refuse further austerity and foreign domination, or voters from northern Europe will send a clear electoral message that they don’t support bailouts. And there’s a good chance one or both of those events will happen before a broader European bank recapitalization can be achieved. In the meantime, who wants to put extra capital into those ailing Irish, Portuguese, and Spanish banks anyway?

In an even bleaker scenario, bank recapitalization won’t be realized anytime soon and those same economies will show few signs of growing out of their debts. A broader financial crash will result, and it won’t be contained by an easily affordable bailout.

In case you don’t know by now, I see the pessimistic scenario as more likely.