Easy Street

What happens if Greece defaults? A flow chart

Karl Baker May 24, 2012

Greece’s plan to shrink the size of its government is in danger of falling apart. Political parties opposing this proposal won enough support in that country’s May 6 election to cause some to question whether these reforms will remain in place.

But if Greece doesn’t carry out its public sector cutbacks, it likely won’t receive bailout money from other European countries. That would mean Greece would have to default on its loans. It would also likely spell an end to its euro zone membership and its use of the euro as a currency, what some today are calling a “Grexit.” Some bank customers in Greece have feared this outcome, and while there hasn’t been a run on banks as some anticipated, depositors have withdrawn about €700 million from Greek banks since early May, according to a Bloomberg report.

Bankers in the U.S. are watching these events closely. That’s because a Greek default might cause a chain reaction that could upend our own financial system, reminiscent of the 2008 financial crisis. Follow our flow chart below to see how a Greek default might playout in the global economy.

Greek Default Flow Chart

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