A few months ago I talked to the BBC about Greece and said the country faced two choices.
It could go down fast, through a default, the equivalent of a Chapter 7 bankruptcy, followed by leaving the Euro. Or it could take the equivalent of a Chapter 11 bankruptcy, signing a work-out deal with the EC (NYSEARCA:EU) and staying in the Euro.
On the way to today's Chapter 11 deal a few things have happened.
European banks have gotten the aid they need to stay afloat in the event of a Greek default. This has stiffened their spines in negotiations.
Greek people have expressed an interest, in the streets, for a default, which includes some fairly racist rhetoric against the Germans who run Europe's biggest banks.
What's missing on all sides is a Greek growth strategy. The Greek economy has collapsed under the Euro, and unless Greece can re-start its economy and grow again today's deal isn't worth doing.
This is why austerity, as a rule, doesn't work. Letting everyone go to the wall and paying debts doesn't leave them with the capital to go forward again. It's what happened to America during the Great Depression and what would have happened in 2008 had not first the Federal Reserve and then the Obama Administration loosened the floodgates on money and demand.
Europe has been led for several years now by people who, for Europeans, are fairly conservative. They have sold austerity as the ultimate solution to the continent's economic problems. But austerity never works.
In bankruptcy, the debtor is left with some working capital with which to get started again. In Texas this can include your home. Everywhere else it at least means your future income. And the creditor takes a hit. The money they're owed disappears from their books. Both sides are punished equally and this should make both resist making bad deals in the future.
But that's not what appears to be happening under the deal Greece is getting ready to sign. The British plan for growth is centered only on Britain, its desire to remain Europe's banker and the outpost of Hollywood. It's not a Greek growth strategy.
The question should be, how will Greece grow? If the EC can't answer that, then the bail-out will fail and Greece will leave the Euro. As it should.
Because we know how it would grow in the event of default. Greeks' Euros would become drachmas, the drachma would collapse, but Greece would become such a cheap place to do business that everyone would want to vacation there, once the riot police clear out. Greek fish would be so cheap everyone would want them. Greek labor would become so cheap everyone would want to hire it. And Greek businesses would become so cheap everyone would want to buy them.
Now the savings of Greeks would disappear, true. Their homes and land and businesses would become like Prometheus on the rocks, an invitation for vultures. The initial profits from all this hiring and all these transactions would go to foreigners. But Greeks would have jobs, they would have a chance to start new businesses, and they would have a fresh start, as Iceland has gotten a fresh start by being out of the Euro, and as Argentina got one by dumping its dollar peg.
So while the creditors had all the advantages over the last several months, and thought their moves to shore up balance sheets gave them the room to force a hard deal down Greek throats, the first step to a comeback - surrender - is looking better-and-better. This is what representatives of creditors, like the Peterson Institute, really fear.
And if Greece succeeds after leaving the Euro, why should the other debtors stay in it?
Additional disclosure: I do have some holdings in European mutual funds that are underwater.