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On another note "Greeks would transfer all their deposit to foreign banks, a process that is already partially under way" implies that when the process is completed, there won't be much of a problem. I note that the Greek taxpayer has offered the Greek banks from the start of the crisis until now, somewhere close to 110 billion euros in direct funding and (mostly) guarantees - 30 billion Euros a few days ago
The road of excess leads to the palace of wisdom - William Blake
What is implies is that the Greek banks have for all intents and purposes already failed and the drain of cash out of Greece is impacting the current account balance. That is a process that should be stopped.
The charitable interpretation is that Bini Smaghi seems to be implying that the only eligible collateral the Greek banks have at this time is Greek debt, and were that to become worthless the Greek banks would lose access to ECB liquidity for that reason.
If either of these interpretations let alone both are correct, I think desperate corrective measures are needed, including a derogation of free movement of capital in and out of Greece. More than an outright ban, possibly a tax on outflows. This might allow Greece to restructure its banking sector without defaulting on the public debt. The situation might be hopeless, though, and then a default would follow after a complete collapse, whereas Bini Smaghi claims a collapse would follow a default.
On capital controls, see this post by Krugman and links therein.
Economics is politics by other means
If Greece has currently (2010) a primary deficit of 4,5% than why would "a default at this time would lead to the cessation of pension and other social payments" and not a net cut of ~5% in all public expenses?
Because the 5% is 5% of GDP, not 5% of government expenses (which are something closer to 35% of GDP - so spending would need to be slashed by 15% across the board.
Keynesian multipliers are just as dramatic in reverse as they are when you're doing it right...
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