e21 has a good staff editorial up on the now-tragic Greek crisis, with possible implications for New York and California.

The plan for Greece, of course, is for Europe and the IMF to bail out the debt-drenched nation’s bondholders, by imposing austerity measures on everyone else. These measures must be draconian enough “to attenuate the anger of German voters.”

But the Greeks, or at least the most vocal and violent of them, are not cooperating. As the editorial notes:

Whether the Greek unions succeed in quashing the deal, eventually the strings attached to the aid will impose costs on an interest group with sufficient clout to make the interests of creditors [bondholders] seem less compelling. At some point, taxpayers in the “parent” will demand concessions that the bailed out entity will not abide. At this point, the bailouts will finally end.

Here at home, bondholders lend money to states like NY and CA largely because they think that the feds will bail them out in a crisis (I think).

President Obama’s “Build America Bonds” program has solidified this expectation. After all, international bondholders are buying muni bonds labeled “America” itself, giving them extra confidence if they don’t know very much about individual state credits and don’t care to learn.

But what if, when the time for an explicit bailout of American states is at hand, whoever is in charge in DC must make New York and/or California make tough-minded public-sector concessions to get the rest of the nation on board? Then, it may not be worth it, politically, for state governments to serve as the conduits for bailouts of their bondholders.

In that case, bondholders, at the very least, would have to take some losses along with other big creditors, including pensioners — and quite possibly have to take even bigger losses than the better-connected parties.

America may not have to confront such issues this year or this half-decade. But unless heavily obliged American states start to pare back their long-term obligations, the question likely will arise someday.

Please read more on this topic here, too …