The problem with "internal devaluation" is that debts are denominated in nominal amounts (or, fortunately a small quantity, in inflation indexed amounts) so "internal devaluation" (i.e., price and wage deflation) makes debt burdens even more unsustainable. In fact, the initial "sustainability exercises" for the Greek economy included forecasts that the debt-to-GDP would grow from about 120% to about 160% or something like that, while at the same time the "bailers" were insisting on "penal interest rates" to avoid "moral hazard".

The whole thing is a travesty.

And, when you consider the absolute level of wages in Greece, the only explanation for why they can be so low and yet productivity also be low is that there is a dearth of investment in physical capital in Greece. The same workers using their bare hands or adequate equipment will be very differently productive. With the destruction of the Greek economy currently under way, productivity still will not recover until somebody outside Greece invests in capital formation in Greece. Oh, and the European Investment Bank cannot do it because its projects have to be co-financed 50% by the recipient state, which is currently being dismantled.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker