Greece Default Imminent

What’s the Latest Development?

The Greek government recently passed austerity measures to cut government spending during a 48-hour general strike. They did so in order to receive another round of bailout funds (loans to be repaid with interest) from the Eurozone (French and German banks). In the short term, it will be nearly impossible for Greece to pay its creditors. The most likely scenario, unless Europe has a suicide wish, is for creditors to renegotiate debt contracts and accept payment at a later date. The alternative would be a forced-default which could put the entire European currency at risk. 

What’s the Big Idea?

“It isn’t the consequences for Greece of a Lehman-type ‘credit event’ that worry the central bankers and governments: the risk of ‘contagion’, as they call it, throughout the Eurozone is what preoccupies them. The euro was not designed to default, so when Greece does, other European countries who have had to ask for non-bailout bailouts—Ireland and Portugal—will have their ability to repay their debts questioned. If one or other of them undergoes a ‘rollover’, or ‘restructuring’, or ‘rescheduling’ of its debt—all polite words for default—the next country in line will be Spain, and that is where everything changes.”