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Why you should care about Greece's potential default
Fans show their support in the third round match between Marcos Baghdatis of Cyprus and Denis Gremelmayr of Germany during day five of the Australian Open at Melbourne Park Jan. 20, 2006 in Melbourne, Australia.
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Kai Ryssdal: As of the latest on the foreign exchange markets today, 8 billion euros works out to about $11 billion. That's how much the Greek government's due to get from the European Union bailout fund come the end of the month. It'll keep Athens solvent and -- the theory goes -- keep Europe from a Lehman-like crisis.
Tonight Germany's Angela Merkel and French president Nicolas Sarkozy got off a conference call with George Papandreou -- he's the prime minister of Greece -- and said Greece remains an integral part of the eurozone. U.S. Treasury Secretary Tim Geithner said this morning on CNBC there's not a chance the E.U.'s going to let the Greeks default.
We asked Marketplace's Stephen Beard to follow up on our story yesterday, and explain why a tiny little country in a far off corner of southeastern Europe is so important.
Stephen Beard: This is not one but three crises intertwined. And each of them could affect the U.S.
First, there's the crisis over sovereign debt. If the Greeks default, it will be the first time for a developed country in 60 years. Gabriel Stein of Lombard Street Research says that would raise doubts about other governments' finances.
Gabriel Stein: A Greek default will prompt the possibility and likelihood of a Portuguese default, and perhaps even Spanish default and concerns about Italy.
And, he says, eventually that could raise further concerns about U.S. credit worthiness.
Stein: Greece is the canary in the gold mine if you want. It's the warning signal that even countries like the United States -- a massively rich country -- cannot simply pile on debt and expect that nobody will ever get worried about it.
So far, foreign investors have not lost their appetite for U.S. government debt. But, Stein says, that appetite could wane.
And then there's crisis number two: A Greek default could force Greece out of the eurozone and plunge the world's second most important currency into turmoil. Dominic Swords of the Henley School for Business says that could spark another crisis.
Dominic Swords: Another round of lack of confidence, reduction in investment and slow growth.
The third euro crisis poses the biggest threat to the U.S.: European banks are stuffed with eurozone government bonds. They will suffer big losses if Greece and others default. The banks will cut their lending.
Tim Leunig of the London School of Economics says the result will be recession.
Tim Leunig: Certainly in Europe, with knock-on effects in the rest of the world, which given that the U.S. is spluttering at the moment, would be problematic in the United States.
The three eurozone crises combined could hit the U.S. hard. Indeed, some observers say it could be Europe's answer to the collapse of Lehman Brothers, with this time the shockwaves traveling westward across the Atlantic.
In London, I'm Stephen Beard for Marketplace.
Banks do not create any wealth. They leach of the wealth created by others. In particular, when someone takes a loan to pay bills, like the Greek did, that loan was never going to be paid back with interest... because Greece was using that money to pay bills, not create wealth-from-thin-air. The only way Greece can pay back this loan is by borrowing more.
So, the relationship between greece and the banks is similar to a drug-dealer and a drug-addict. Now Greece cannot pay for the drugs it has already used, and if the Banks that are supplying Greece with the drugs also go under, Greece will really have to quit.
But the Banks love the drug-business. They want to maintain the status quo. So they are trying their best to scare governments :) Marketplace represents the Financial Industry, and they are cheer-leading for the Banks. They want citizens to bail out the banks... otherwise, according to MarketPlace, the world will come to an end.
Unlikely.
As long as we have resources, and engineer/farmers to convert these resources to wealth, human civilization is not in danger. The stupid banks who loaned greece money should go out of business, replaced by clever ones. That is how capitalism works.
But so powerful are the Banks, and so naive are people, that Banks have so far gotten away with rape. Ben Bernanke, in the USA, has stimulated the Banks to the tune of Trillions, to cover up the gambling losses of the Banks. Europe is harder because Germans are smarter than Americans, in general. But MarketPlace is doing its part, to scare citizens into bailing out the banks :)
As long as the investors at the other end of those Greek bonds are paid, they are not at default.
No one is threatening better run countries. As long as your country doesn't trade with anyone in Europe and have banks that own bonds in Europe or need a loan anywhere in Europe then you are fine. In other words East Texas once again will not be affected.
