Greek Default Without Leaving the Euro? The Wrong Question.

The Wall Street Journal online header asks this question, which John Cochrane of Chicago Booth and many others have answered, "Most definitely, yes."

However, it is the wrong question to ask. For Greece, its political leaders and the electorate have to decide about the rising costs and declining benefits of staying in the eurozone, including the never spoken about effective loss of national sovereignty and damage to the Greek democracy of being beholden to the ECB, ESM, and the IMF, all faceless bureaucrats with other agendas and different cost-benefit ratios.

Greece has lots of economic problems, one of which is the relatively small size of its export sector which has also been hurt by its growing, self-inflicted loss of manufacturing competitiveness, as pointed out in the financial press.  If Greeks are ever to turn their economy into something other than an object of derision and pity, they need to take charge of it, apart from a non-stop, weekly crisis in the world view.

Yes, that pathway will be messy and their will be prices to be paid.  However, the current situation, even with sovereign debt holders taking a haircut, won't end the problems of a "transfer union" that is the euro today.

The EU needs to look at itself, a Greek settlement with significant investor haircuts and write downs, even without a Grexit calls into question the value of the currency union in its current design.

It is not just Greece that faces a day of reckoning.