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Martin Feldstein calls Greece's mix of overwhelming government debt and a free-falling economy an "otherwise impossible situation." Greece will default, as Feldstein argues that is the only way out. But after it defaults, will it leave the euro zone? Having its own currency just might open more options. Feldstein argues there are two reasons that the key influencers in the Euro zone (Germany and France) do not want Greece to leave. At least not just yet. From Project Syndicate : First, the banks and other financial institutions in Germany and France have large exposures to Greek government debt, both directly and through the credit that they have extended to Greek and other eurozone banks. Postponing a default gives the French and German financial institutions time to build up their capital, reduce their exposure to Greek banks by not renewing credit when loans come due, and sell Greek bonds to the European Central Bank. The second, and more important, reason for the Franco-German struggle to postpone a Greek default is the risk that a Greek default would induce sovereign defaults in other countries and runs on other banking systems, particularly in Spain and Italy. This risk was highlighted by the recent downgrade of Italy’s credit rating by Standard & Poor’s. A default by either of those large countries would have disastrous implications for the banks and other financial institutions in France and Germany. The European Financial Stability Fund is large enough to cover Greece’s financing needs but not large enough to finance Italy and Spain if they lose access to private markets. So European politicians hope that by showing that even Greece can avoid default, private markets will gain enough confidence in the viability of Italy and Spain to continue lending to their governments at reasonable rates and financing their banks. Read Europe’s High-Risk Gamble here .

Diane Lim Rogers , Chief Economist for the Concord Coalition, was interviewed for this very interesting Planet Money piece on US citizens donating money to reduce the federal deficit. In the interview, she said that it would be "economically stupid," for all taxpayers to rally together and pay off the debt. She also said it would be "unwise," as current citizens would be taking on a huge, unfair burden. Rogers explains her comments at her Economist Mom column: But let’s assume we could do it without destroying our nation; let’s assume we could go “poof” and wipe the debt slate clean. What would paying off the debt entirely today accomplish in terms of fiscal sustainability? Not nearly as much as it would seem. Unfortunately, reaching even zero debt does not eliminate what’s “unsustainable” about our fiscal outlook. We would start with a clean slate, but right away our debt would start accumulating again–because the dynamics of the fiscal outlook would still be all wrong: promised entitlement benefits would still be growing too fast for the economy and revenues to keep up. While without any debt we’d eliminate about $200 billion in net interest this year, the rest of mandatory spending alone–without counting any discretionary spending–would still use up nearly all of our revenue. So even having “zeroed out the debt clock” we would still have a large deficit right away this year, immediately starting the debt clock back up again, and that new debt would be immediately projected to keep growing faster than GDP–the definition of an “unsustainable” fiscal outlook. So even a magical zero debt to GDP situation is not “sustainable” if the unsustainable paths in the fiscal outlook are not changed. Conversely, a high debt to GDP situation, while not ideal (because of the interest burden), might still be “sustainable” if the economy is on a growth path that manages to keep pace with the gap between spending (including interest) and revenues. That’s a big “if” though. Which is why when I said that there’s no such thing as an unsustainable level of debt to GDP (at any one particular point in time) I didn’t mean to imply that a high level of debt to GDP couldn’t be consistent with a completely unsustainable path of debt to GDP over time. What I’m trying to say is what defines that unsustainability isn’t where we are right now but what we’re doing (or not) to change where we’reheaded. Read Why eliminating the national debt alone would not fix America's fiscal woes here .

Protesters clashed with riot police yesterday in Greece, and three people were reportedly killed in a bank fire in Athens. The protests over the Greek government's acceptance of the austerity measures required as a condition of an EU/IMF bailout of the Greek economy, have grown larger each day. The whole Greek episode has brought many to consider the very nature of the Eurozone. Evan Newmark , Mean Street columnist for the Wall Street Journal , argued yesterday that Greece and the EU would be better off if they parted ways and Greece reinstated the drachma. Newmark made the comments as part of this panel discussion: For a bit of perspective, Ernst Weizacker, Co-chair for the UN Panel Sustainable Resource Management, reminds us that Greece makes up a very small percentage of the EU economy. That leads him to conclude that talks of the Greek "contagion" are overblown: Watch the complete Weizacker interview at Big Think, here .