2011 September 25 Sunday
Greece Looks Set To Default In 6 Weeks

European governments are trying to prevent widespread bank failures due to bank losses on the Greek sovereign debt they hold.

European Union governments will spend the next six weeks building a financial firewall to protect their fragile banking systems against what is now seen as an inevitable Greek default.

G20 sources said that up to 50% was likely to be wiped from the face value of Greece's 350bn debt but not until Europe had put into place a war chest to prevent the contagion spreading.

If the contagion spreads then you might want to read up on how to sell apples at street corners or perhaps effective techniques for begging. Plus, get to know where the food banks are located.

France denies it needs to prop up its banks.

France rejected speculation that it was preparing to put up to 15bn (13bn) into its banking sector despite fears about the impact of losses from Greek debt might have on some of the country's banks and others across the eurozone.

Maybe the French think the European Central Bank can bail out French banks.

In the absence of other structures, a consensus is emerging that the European Central Bank will have to monetise debt by buying large quantities of Greek bonds to keep banks, especially in France, afloat.

The Mandarins in Brussels think they can pull off a default without dominoes falling elsewhere.

For the past two months, Eurocrats have been talking increasingly confidently about an 'orderly' default within the euro. While the markets might refuse to lend to welshers, the EU could supply the shortfall. In the mean time, Brussels would bail out the banks which had foolishly bought Greek bonds.

Watch interest rates on Italian, Spanish, Portuguese, and Irish bonds if you want to find out whether the markets believe the firewall will work. If interest rates on Italian or Spanish debt go over 6% and stay there then much bigger dominoes are going to fall.

A poll in Greece shows two-thirds want to remain in the Euro zone rather than revert to using the drachma. Will they get their wish?

Share |      By Randall Parker at 2011 September 25 01:39 PM  Economics Sovereign Crises

The Duo said at September 25, 2011 5:52 PM:

I don't think that's gonna happen, just like the world won't end in 2012.

Even if it happens, it won't happen. I mean, no big deal ok.

Wolf-Dog said at September 26, 2011 12:39 AM:

It is difficult for Greece not to default unless some rich group of people pay the debt that Greece owes to some other rich group of people. The other alternative will be that Greece will delay the payments, but with the condition that it will work very hard for many decades, for the creditors, at lower salaries.

Note that as a general rule, the upper class as a group, ALREADY recuperated the original sum of money that they lent to Greece, because if Greece is broke then it must already have spent that borrowed money to buy something else from the upper class. The only problem is that currently those members of the upper class that are keeping the money that Greece lost by spending, are probably not the original people (also in the upper class) who had lent to Greece the initial sum of money that Greece is unable to pay back. But if Greece does pay back that loan (by working hard for the creditors at lower salaries for many decades in the future), this means that the upper class as a group will recuperate more than twice the original sum it had loaned to Greece because long before the original sum is paid by Greece to the creditor group, Greece will have spent that money by losing it to the upper class, and meanwhile Greece will also pay interest on the loan for many years, further increasing the income collected by the creditor group.

A.Prole said at September 26, 2011 6:59 AM:

If senior officials deny something than you can bet your bets that what's being denied is the truth - remember how Lehman's claimed 'all is well' literally hours before they crashed?
So Greeks want to stay in the Euro - a case of there being such a thing as a free lunch #at German expense#.
The whole Euro was a disaster from the beginning.It was a political currency motivated by purely political imperatives #ie to force federalism on Europe#.
The Greeks should be kicked out of the Euro forthwith as punishment and made to stand on their own two feet.I have no sympathy for them.Their deceit, mendacity, lies, deception, duplicity etc etc has f*cked over everyone else.
Perhaps the EU should have brought in Turkey rather than Greece.Whatever else you might say about them, Turks have a reputation for honesty.

keep it real said at September 26, 2011 5:13 PM:

Capitalism is dead. Let's hope we haven't grown so fond of it that we fail to see it. Let's hope that our noses haven't grown so numb that we cannot smell the decay in that corpse.

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