So we finally know the structure of the Greek bailout. 16 EU nations pledged to throw good money after bad and extend taxpayer-financed loans to Greece when the country starts to default. From Bloomberg:

March 16 (Bloomberg) — European finance ministers laid the groundwork for a financial lifeline to debt-stricken Greece, breaking a taboo against aid to cash-strapped governments in order to avert a crisis for the euro.

Officials from the 16 countries using the currency worked out a strategy for emergency loans in case Greece’s plan for 4.8 billion euros ($6.6 billion) in tax increases and wage cuts fails to stave off fiscal disaster.

“We clarified the technical arrangements that would enable us to take coordinated action which could be swiftly put into place in the event it is necessary,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after leading a meeting of euro-area finance officials in Brussels.

With the euro undergoing the harshest test in its 11-year history, the unprecedented pledge reflected concern that Greece’s budget woes could spread, poisoning investor confidence and aggravating the currency’s 10 percent decline against the dollar since November…

…“The objective would not be to provide financing at average euro-zone interest rates, but to safeguard financial stability in the euro area as a whole,” the ministers said in a statement.

Of course almost everyone has it wrong about the implications for the euro. Sovereign defaults would be good for the euro, even if those nations end up leaving the monetary union for their drachmae, lire and pesos. Defaults are by definition deflationary, since they reduce the amount of outstanding credit balances, thereby increasing the value of the remaining euros. If everyone but Germany defaulted and left the EMU, the euro would be stong and they’d call it the Deutschemark again.

This is the dynamic that has propped up the strong Yen for 20 years even as the government has run up huge debts, and it is the same reason the dollar finds a bid whenever panic enters the financial markets. In a credit crisis, the very condition of having piles of debt denominated in a currency creates demand for that currency by both debtors and creditors.

What these bailouts are going to do is reduce the relative demand for euros and likely result in an accommodative ECB printing up hundreds of billions more. The politicians are lying or ignorant or both when they say that their goal is to save the euro — this is nonsense. Their goal of course is to save the bankers who own them.

The Greek taxpayers of course, if they have half a brain and some guts, should refuse to service this debt and simply force an honest default. All of Europe is conspiring to make them debt slaves forever, and the only Greeks who benefit are the political gangsters and government unions.