At the Chicago American Finance Association (AFA) meetings (held in conjunction with the AEA meetings), I attended a panel discussion on Fri., Jan. 6, 2012 on “Sovereign Default.” The session was chaired by Simon Johnson, and included Kenneth Singleton and Carmen Reinhart (who has co-authored a much-discussed book on the history of economic crises). (Martin Feldstein was supposed to participate but did not, and I did not catch the name of the scholar who replaced him on the panel).
When asked if they expected multiple countries in Europe to default in the near to medium term, all panel members agreed that such default would happen. (The consensus was that Greece, and at least a couple of other countries, would eventually default—the Euros needed to bail them out were too large, even if the Germans and the ECB changed course and wanted to try.) Before seeing the panel, I was not aware that expert academic opinion was so agreed on this prediction.
There was less certainty about whether this would necessarily lead to the end of the Euro. Reinhart pointed out that even in Greece, where austerity is severe and unpopular, there is currently little popular support for abandoning the Euro.
The panelists seemed to believe that sovereign defaults might lead to slow growth, high taxes and inflation, but might not lead to catastrophe.
Reinhart suggested that Europe, and maybe also the United States and the rest of the world, might just muddle along for an extended period.
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