This guest column was written by Mario Kranjac. He is the founding partner of Kranjac Manuali & Viskovic LLP and specializes in mergers and acquisitions and corporate finance.
NEW YORK (
) -- While we are bombarded with images of turmoil in Greece there is an argument that the Greek government should avoid the austerity measures it has put in place in return for outside funding. But we should embrace, rather than fear, Greek austerity. A true default would ultimately bring with it very positive economic tidings.
Governments have no resources that they haven't first taken from the private sector, and this means they can only spend insofar as they borrow from or tax the citizenry. Every dollar, euro or yen governments spend is something they've extracted from the private sector first.
Looked at in terms of Greece's troubles, a real, uncushioned default by its politicians would certainly be a disaster -- for its politicians. Assuming Greece's government is forced to stiff its creditors without any help from the U.S., the EU or the IMF, it will be a long time before its government will ever again be able to fund its spending habits through accession of global markets for debt.
So this would be hard on Greece's political class, but it would be great for Greece's economy overall. Reduced spending on what is frequently government waste would be reoriented to more useful and economically beneficial pursuits in the private sector. Less government spending means more capital made available to productive ideas.
Some will point out that many of Greece's citizens are employed by the government, which means austerity would put them out of work. That is true, and it's something that would very definitely accrue to Greece's economy.
For one segment of Greece's population to work for the government means another must pay for their employment. Assuming a reduced governmental workforce in Greece we can also assume a lower tax burden on the broader population in Greece.
As for those put out of work, recessions tend to focus our minds and wanting to maintain their lifestyles, necessity would force out-of-work government workers in Greece to find private sector jobs. By leaving the government to work in the private sector, these former government workers will almost certainly be forced to labor in more economy-enhancing ways. This on its own would revive, rather than weaken Greece's, economy.
Reduced government spending would free up a lot of capital that private sector businesses could access. With Greece's government vacuuming up less in the way of euros, private businesses will have greater access to cheaper credit on the way to more expansion and more hiring. Even better, a true Greek default would force investors to rethink all investment in government debt, which means the positive impact of Greece not paying its creditors would be felt globally.
Some banks would descend into insolvency under such a scenario for either holding Greek debt on their balance sheets, or for having sold default insurance to investors. Bankruptcy among certain banks would surely spook the global economy in the near term, but long term the effect would similarly be positive for banks and investors casting a far more skeptical eye on the debt of governments.
The least noticed, yet very positive aspect of Greece's debt problems involves investment. I've seen this up close through Greek-American clients who've begun to purchase assets owned by Greece's government that are for sale thanks to its difficulties in paying back its creditors.
Greece's unfortunate financial situation and the resulting government fire sale has caught the eye of savvy investors.
Foreign investment is certainly beneficial for the inflow of financial capital that is implied, but the far greater advantage concerns what it says about the inflow of human capital. Whatever the troubles of Greece the country, individuals of Greek descent are presently thriving around the world. That the country's debt troubles have served as a lure to bring their financial and business know-how back to the struggling country points to a bullish future.
Ultimately, a country's success isn't found in an oil field. If that were so, Nigeria and Venezuela would be beacons of economic opportunity for the world's ambitious. Instead, it is human talent that drives country success, and surely a major factor in Greece's modern decline has been the outflow of its vital few.
Happily, the sheer profligacy of Greece's political class has forced a sale of assets that is presently bringing the vital few back. That, combined with plummeting investor interest in the country's debt, points to a more prosperous future given the combination of new investment met with new entrants to the private sector workforce.
No doubt Greece's debt troubles could be papered over through bailouts. But to do so would be for the IMF and wealthy governments to rob the country of a better economic future through the allowance of failure for its political class.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.