Christine Lagarde, Managing Director of the IMF, insists as Spiegel Online International reports, that

For Greece to recover…creditor countries would have to forgive the government in Athens a large share of its debt.  “Nothing else will work[.]”

After all,

given that Greece will be unable to reach the target [of debt to GDP, originally 120% by 2020] on its own, European creditors have little choice but to forgive a portion of the debt they hold, Lagarde insists.

Additionally,

Senior troika representatives, including ECB Executive Board member Jörg Asmussen, Thomas Wieser, the president of the Euro Working Group, and IMF representative Paul Thompson, are campaigning for a debt haircut, especially among smaller member states.  Their goal is to reduce Greece’s 2020 debt level from the 144 percent of GDP that it would likely be without any kind of debt forgiveness, to just 70 percent.  To achieve the latter number, creditor countries would have to waive half of their claims.

The proposed haircut (of which the just concluded deal is a down payment) is a default, as was the prior haircut forced onto Greece’s many private creditors.  And here we are again.

These worthies are conflating default and forgiveness with bankruptcy, and that’s why we’re here again.

Default must come through a Greek bankruptcy, not through the EU, or the IMF, condoning irresponsibility by saying, “Forget it; consider our erstwhile loans to be grants.”  Forgiveness, which approaches a bankruptcy outcome, doesn’t achieve the new beginning that a bankruptcy would; it merely condones past irresponsibility without an actual write-off and fresh start—albeit with a poorer credit rating.  But what’s the Greek credit rating, functionally, now?  “The situation in Greece is scaring away private investors.”

And all of this shows the original folly of bailing out Greece.  And the similarly original folly of the tactic in the US.