The Cassandras are likely to be proven wrong. A Greek ‘default’ is likely to be only a technical term employed to describe revolving existing short term obligations to long term debt. At the end of the day, that is the only obvious solution for dealing with other heavily indebted states on Europe’s periphery.
If the revolved debt solution prevails the issue of structural deficits or productivity differentials will not have been resolved but the possibility of a solution will remain open.
The structural problems for Greece will remain. Entrenched sectoral interests work against the common good; a colonial conception of the state by its citizens (lack of a social contract) hampers citizen emancipation; a peripheral position within the European economic architecture is exacerbated by a common currency; and an (un)professional political class perpetuates patterns of corruption and nepotism.
The euro and EU transfers having determined the elevation of Greece from 2nd to 1st world (ranked 30th globally on per capita in 2009) they also generate the strongest structural pressures. The Greek economic elite and middle class will loose-out if Greece retrenches to the drachma. So the stakes are high for economic development. At the same time low debt states in the north of Europe do not have the stomach for the type of transfers that will stabilise the periphery in the long term.
So EU solidarity is currently a policy pronouncement rather than signalling intent of implementing a new level of transfers. Until that changes and until peripheral states like Greece manage to ‘evolve’ the current crisis will be self perpetuating.
As a postscript I should also mention that the current public debate in Greece is much more realistic than a year ago. The issues debated appear pertinent, which gives cause for optimism.