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An Argentine Guide to the Greek Crisis

SANTIAGO – Policymakers in Europe seem to be surprised at the ongoing bank run in Greece (and the nascent run in Spain). They should not be. Anyone familiar with emerging-market meltdowns knows that a financial crisis nearly always follows a fiscal crisis.

Argentina’s default in 2001 is but one useful example. In the Argentine crisis, the economy contracted by 18% and unemployment soared to 22% of the labor force. Greece is already close to these levels.

Argentina went through a complete and chaotic default on its public debt. In Greece, the “haircut” imposed on creditors so far has been managed by the European Union and the International Monetary Fund. But, with debt still unsustainable, the next round of Greek default could well make Argentina’s look positively Teutonic in its orderliness.

In Argentina, the banking system came close to collapse, causing the government to ban bank withdrawals – introducing the so-called corralito, or bullpen, for deposits – and establishing capital controls. That could be the stage that Greece is entering now. So, if the precedent of the Argentine and other emerging-market crises is a useful guide, what could be in store for Greece next?