Steve Chiotakis: Taxi drivers and tax assessors are off the job today in Greece. They are angry — like most Greeks are — about tax hikes that they say hurt the most vulnerable. But the hike in taxes is one part of measures to raise money and prevent the country from defaulting on its debt.
The unrest and uncertainty are driving fears that the European debt crisis will spread. Jane Foley is senior currency strategist at Rabobank International, an she’s with us now from London. Good morning, Jane.
Jane Foley: Hi there.
Chiotakis: We’ve known about the problems in Greece for a long, long time now. Why does now seem like a turning point for the health of the country?
Foley: Well, it’s really intensified over in the euro zone. Not only is the ECB — the European Central Bank — been drawn into the crisis because we’ve had a resignation by their chief economist. And that was, we think, because he disagreed with them buying euro zone distressed debt. Now, without that, the whole crisis could really accentuate very, very fast indeed. But not only that — there is speculation now that Greece could be on the brink of defaulting. We’ve known that for a while, but Germany, perhaps, is preparing for such an event. Now, that’s unofficial, but that’s what the market fearing right now.
Chiotakis: Is the global economy ready, Jane, for a Greek default?
Foley: Absolutely not. I think we’ve drawn from the experience of Lehman that we really don’t know how far the tentacles of such a default could really be pushed. For instance, we don’t necessarily know who owns what — where are all of these liabilities? Now, people have been trying to work this out for quite a while, and certainly lots of banks have tried to protect themselves over the last few months against such an event. But there is a strong risk that in the banking sector, liquidity could dry up in the way that it did after Lehman, and that could be a negative impact on the global economy.
Chiotakis: Jane Foley, senior currency strategist at Rabobank in London. Jane, thank you.
Foley: Thank you.
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