Greek Default Looms:Eurozone At Death’s Door
by MIKE WHITNEY
“After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.”
– Bloomberg News
Greece is hurtling towards default and the doomsday scenario is beginning to unfold. The IMF, the G-7, and the ECB have all swung into full-crisis mode and are prepared to do whatever they can to minimize the collateral damage. But the shock to the financial system and the fragile recovery is bound to be substantial. A default would have dire knock-on effects for banks in Germany, France and the UK that are presently holding billions in Greek debt. Many of them will face excruciating restructuring or, perhaps, bankruptcy. And the banks and financial institutions in the US aren’t off the hook either, not by a long shot. Take a look at this excerpt from an article in the Wall Street Journal:
“……a European failure is bound to have huge ramifications for U.S. and global financial markets. If there is any doubt on this score, all one need do is consider the U.S. financial system’s massive exposure to European banks. In a recent survey, Fitch Ratings Inc. found that, as of the end of July, the U.S. money-market industry still had over a trillion dollars of direct exposure to European banks—or roughly 45% of money markets’ overall assets. The Bank for International Settlement reports that American banks have loan exposure to German and French banks of more than $1.2 trillion.
“This overexposure to the European banking system should be keeping Mr. Obama awake at night. That’s because those European banks, in turn, are all too exposed to the $2 trillion sovereign-debt market for Greece, Ireland, Portugal and Spain—and they have yet to recognize the large loan losses that they are bound to experience on their holdings of sovereign debt.” (“The Euro Threat to Obama”, Desmond Lachman, Wall Street Journal)
A trillion here, a trillion there; pretty soon you’re talking real money.