Between 2011 and 2012, after their default, Iceland's GDP climbed into the range of 2.4 - 2.9%. Meanwhile the median GDP growth for the 17 EU countries using the euro went from 1.4% to minus 0.3%! -- while the total 27 EU countries (euro and non-euro) went from a median 1.5% to zero percent.
The main point here needs to be "driven home": It is that defaults can in fact be quite positive in the sense that they deleverage the system (rid the country of all its debt burden) and thereby set a sound foundation . . for growth. Yes, the short-term pain is acute -- Iceland saw its economy collapse 6.7% in 2009 when it defaulted. However, a combination of defaulting and debt forgiveness (for households) can restructure an economy enough for it to begin growing again, and rapidly.
Problem is, EU leaders refuse to accept this, even as the facts stare them in the face. The reason is that politics drives Europe, NOT economics: Vested and politically well-connected banking & commercial interests must be protected, even if at major cost to everyone else.
And thanks to the Second Greek Bailout (not to mention the talk of a potential Third Bailout, which has already sprung up), we now know that EU leaders have chosen to go "all in," ostensibly to save the European Union and euro experiment, but even more so to protect these politically well-connected banking and commercial interests.
EU leaders will therefore continue on their current path of more bailouts until one of two things happens:
* The political consequences (the prospect of major electoral defeats) of maintaining this strategy outweigh the benefits, i.e. the people of Europe will stand up to protect their interests.
* The crashing European bond markets will force EU leaders' hands.
And the likelihood is strong that we will see one of these two things happen before the middle of summer. Why? Because of the developing confluence of political, fundamental, technical, and monetary factors that we now see taking form, which will make the possibility of a cataclysmic banking crisis in Europe higher than at any other time in the last three years. Indeed, Europe has never before experienced such a worrisome confluence of negative financial and economic factors as those now taking shape.