Debt crisis: the benefits of selective eurozone default The economies of all five 'PIIGS' [Portugal, Italy, Ireland, Greece and Spain] are contracting. The longer they remain within the eurozone, the more local deposits, foreign investors and industry will flee. Soaring unemployment, mass emigration, deflation and social unrest are guaranteed. Recovery post-default is always driven by a reversal of previous capital flows: deposits return into the system; foreign businesses see the opportunity of cheap wages and a weak currency; governments are keen to smooth their path so regulations are waived. Investors suddenly become interested in building factories and buying assets. Tourists find the exchange rate compelling and arrive in droves. Service companies (which can be based anywhere) find the case for relocation compelling. Currently the PIIGS are aid junkies. The cure for addiction is not to increase the dose as it prevents necessary structural changes. Default will be painful yet this should be brief as it allows reform to take place. The precedents are good, one suffices. 2012 marks the 15th anniversary of Asia's bone-jarring economic collapse; most countries bordering the Pacific underwent some form of default, even China at the provincial level. The problems were artificially high exchange rates and excessive debt. In 1997, it was inconceivable that within 15 years Asia would account for four-fifths of the world's foreign exchange reserves, or 60pc of commodity imports. Rightly so as it only took ten - because there was simultaneous reform. In contrast, Argentina has defaulted three times since 1982 but has never restructured because of its strange Peronist legacy. The world's sixth richest country on a per capita basis in 1914, today its fails to make the top 50. There are major opportunities in crises and defaults, such as the collapse of the Berlin Wall in 1989 which effectively doubled the number of global consumers overnight and resulted in a fifteen-year equity bull market and high growth in real income. Asia's financial crash in 1997 proved another. Today Greece's entire stock market is capitalised at $20bn, less than 5pc the value and 0.5pc of a single day's turnover in Apple. Italian opportunities are potentially greater. It is premature to place bets on the PIIGS today because of the EU's amazing record of dither and delay. Yet decision making has already passed to voters; the priority for national politicians is re-election so rapid changes are imminent. The result should be long overdue reform and economic renaissance, provided the dead hands of government incompetence are temporarily severed. Jonathan Compton, Managing Director, Bedlam Asset Management.