The sooner Greece leaves the euro the better, according to venture capitalist Jon Moulton.
“Greece has got pretty nasty choices. It will be unpleasant coming out of the euro. But at least they’ll get it over with, whereas austerity is many years of pain,” said Moulton, who is the founder and chairman of private equity Better Capital.
“Don’t forget in the next 45 days the Greeks have to pay a lot of money out under the non-Greek law state debt, which hasn’t been compromised. It would strike me as political suicide to pay that if you’re intending to default on your debts later,” he added.
Moulton’s comments came as Greek stocks fell to 20-year lows on Tuesday after the leader of the country’s Left Coalition party, Alexis Tsipras, said Greece's commitment to an EU/IMF rescue deal . Voters rejected pro-bailout parties in a general election on Sunday.
The situation in Greece will boil up in the next month - either because the country can’t form a government, and will have to hold a second election in June; or because they do form a government which will decide to default almost immediately, according to Moulton.
“The EU and IMF are throwing them (Greece) money. But they’re not throwing them enough money for them to maintain their living standards. All that money is essentially being used to pay debt and interest. The people can’t afford to pay the debt and interest. So they get that load off their back by actually stopping taking the money and stopping paying the debt. Default is the right route for Greece,” Moulton told "European Closing Bell".
“The hard fact is we need to actually cut the size of the states in Europe, which are way past healthy levels and get ourselves back to bigger private sectors. If there’s no growth, you actually have to cut the size of the public, endure the pain that follows and see the growth on the far side. But those are some years of pain. And at the moment there’s no electoral desire to do that," he said.
“The odd thing about people who come out of things like currency unions is actually the countries that come out first are the ones who do best. The Greeks may prosper from it,” he added.
Turning to Spain, Moulton said the country had little choice but to deploy measures to save its banking system.
“The Spanish banks hold a lot of Spanish sovereign debt. They’re really like two drunks leaning up together at this stage. They at least can stay upright if they keep shovelling money into each other,” he said, adding that despite the country’s efforts, Spain will probably see some of its institutions fail.
“Failure, at some stage, has to come out of this crisis. You have to allow failure. You have to address the fundamentals, or else you just carry on going down, putting band aid after band aid on the wound,” he said.