STEVE CHIOTAKIS: The debt crisis in Greece is again rattling world financial markets. There’s a huge impact in Athens, where the Prime Minister’s cabinet is getting reshuffled today. Investors continue to worry another European banking crisis is on the way.
Marketplace’s Stephen Beard is with us live from our European desk with the latest. Hi Stephen.
STEPHEN BEARD: Hello Steve.
CHIOTAKIS: All right, a government defaulting — isn’t that rare, Stephen? Especially for a small country? Why is the Greek crisis having this continued global effect?
BEARD: It’s all about interconnectedness. As a member of the euro zone, Greece is joined at the hip with other heavily indebted euro zone countries — Portugal, Ireland, Spain, Italy. And between them, they borrowed more than $3 trillion. Much of it from European banks. So the fear is a Greek default could be the first domino to fall.
Here’s Peter Thal Larsen of BreakingViews.
PETER THAL LARSEN: The danger is that a Greek restructuring prompts people to start getting worried about the debt of other euro zone countries. And then you have a sort of potentially a vicious spiral that affects the confidence in the banking system.
CHIOTAKIS: The banking system, but Stephen, this is just European banks. Why the global reaction?
BEARD: These European banks have got big links with U.S. and Asian banks. It’s all about confidence and some analysts are saying a Greek default could trigger such a wide-spread loss of confidence that it would be rather like the freeze in lending after the collapse of Lehman Brothers three years ago.
CHIOTAKIS: When the credit dried up. All right, Marketplace’s Stephen Beard in London. Stephen thank you.
BEARD: OK Steve.
HOBSON: The Greek government is being reshuffled this morning as the debt crisis in that country again shakes world markets. Global shares are down on new fears that Greece won’t be able to pay its bills.
And as our European Correspondent Stephen Beard reports, investors are worried that could spark another banking crisis.
STEPHEN BEARD: The Greek government has borrowed almost $500 billion. Eighty-one percent of that has been lent by European banks, with the French having the most exposure. A Greek default or restructuring would hit them hard. As a result, Moody’s has just warned it may downgrade its credit rating on the big French banks. But there’s a much bigger worry — the $2 trillion lent by European banks to other heavily indebted European countries.
Peter Thal Larsen is with the financial website BreakingViews.
PETER THAL LARSEN: The danger is that a Greek restructuring prompts people to start getting worried about the debt of other euro zone countries. And then you have a sort of potentially vicious spiral that affects the confidence in the banking system.
Some analysts say that a Greek default could lead to a much wider loss of investor confidence similar to the freeze in lending after the collapse of Lehman Brothers in 2008.
In London, I’m Stephen Beard for Marketplace.
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