In European Debt Crisis, Some Call Default Better Option

DUBLIN — Ireland has finally taken its medicine, accepting the financial rescue package European officials have been pushing for several weeks.

But even as Europe moved to avert this latest debt crisis, economists and policy experts are increasingly debating whether it would be better, and fairer, for the Continent’s weakest economies to default on payments to lenders.

Many experts now say that bailouts only delay the inevitable. Instead of further wounding their economies with drastic budget slashing, the specialists assert, governments should immediately start talks with bondholders and force them to accept a loss on their investments.

The risk, of course, is an investor panic that would seize financial markets at a time when the global economy remains on tenterhooks.

But an organized restructuring of debt that would reduce the amount of money troubled countries owed, especially in conjunction with a financial aid package, might provide a quicker path to recovery and avoid the trauma of a forced default down the road, some economists argue.

“Policy makers face the same dilemma as in any crisis with respect to haircutting bonds, and the real-life decisions are always extremely difficult,” said Robert E. Rubin, the former Treasury secretary, who faced just such a quandary in 1994, when he helped arrange a $47 billion rescue package for the Mexican government as it teetered on the verge of default.

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