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A shop owner reads a book next to closed shop Friday in central AthensTHANASSIS STAVRAKIS

It is becoming a rite of spring, along with the blooming of the flowers and the falling of the Maple Leafs. You know it's April when talk of Greek debt restructuring hits the headlines.



Almost exactly a year after the last crisis in Europe, which was resolved not with a default but a €110-billion ($150-billion) bailout, Greece is in the headlines again. And unless the country fixes its balance sheet, odds are that even with yet another helping hand from its European neighbours, Greece will be back in the spotlight again next year. The long-shot hopes of the European Union and the International Monetary Fund - that an unlikely combination of austerity and growth would solve the problem - look unfounded. Greece has cut its deficit, but not enough.



So 12 months hence, the problem will have grown larger - not just because the country will be another year older and deeper in debt, but because the corrosive belief that bondholders should not have to face a haircut in a restructuring will be a little more entrenched. After all, in Europe, "default does not exist," as EU Commissioner for Economic and Monetary Affairs Joaquin Almunia told Bloomberg Television from the World Economic Forum in Davos a little more than year ago.

The biggest losers from such a belief are the ambitious young people of countries such as Greece, and there are many, who are chained for yet another year to the debt run up by their elders. Even one of those who works for lenders in such situations argue that the best move is a default. That would be Adam Lerrick, who ran the Argentine Bond Restructuring Agency, which was the largest foreign creditor in Argentina's $100-billion (U.S.) debt restructuring.



"To default and restructure remains the best economic option for the union's over-borrowed states," Mr. Lerrick recently wrote in the winter 2011 issue of economic journal International Economy. When Europe agreed to the last bailout, "the Greek people were denied a fresh start," he argued.



There are plenty of complicating factors in the situation in Europe, such as the effect on the balance sheets of dodgy European banks that are swimming in debt tied to Greece, as well as the success of the great plan to unify Europe's economies, to end the squabbling that has, in the past, led to war.



But the longer the wait, the deeper the hole will get in Greece and other troubled EU states, and the more prevalent the insidious belief that government bonds somehow come with iron-clad rights to repayment. When you get paid your double-digit yield, you take your chances. Except in Europe, where apparently, you don't.



That's what's so frustrating to financiers who refuse to invest in bonds of Greece and Ireland and other countries in rough shape, even though that debt comes with juicy yields. There should be a risk to buying those bonds, but the way things in Europe are going, that risk isn't there. Restructuring is the way that loans that should never have been made are dealt with. Some fault lies with the Greeks, but some lies with the lenders, and they should pay too.



Ignoring that principle and instead choosing endless bailouts feeds a deep moral hazard. The reality is that countries do default, and it has happened often. But that lesson is being forgotten in Europe. And it's all in the service of what Mr. Lerrick calls "the continent's grandiose geopolitical vision."



The concern voiced by Greece that it will be shut out of financial markets is valid, but probably overstated. The fact is Greece is already shut out. The reason everybody is talking about a default is there's concern that investors won't buy the debt Greece needs to sell to keep its situation from deteriorating further. In the secondary market, investors are shunning all but the shortest-dated Greek debt to avoid getting caught in a restructuring.



Once the balance sheet is cleansed, there's at least a hope that lenders may come back in earnest. They are doing so in Argentina, though it took years after that country took a very hard line with creditors. They do in most corporate situations after a restructuring. They do in consumer bankruptcy. If anything, despite the up-and-down global recovery, credit markets are more open now than ever and investors are willing to lend. As restructurings go, from a market perspective, the timing isn't bad.



The Germans, who write the biggest cheques in Europe's bailouts, are beginning to come around to this view, no doubt pushed by a citizenry that is tiring of paying the bills. Werner Hoyer, Germany's Minister for European Affairs, said on the weekend that "a haircut or a restructuring of the debt would not be a disaster."



Maybe by next April the world will know if he is right.

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