Could Greece Be The Next Lehman Brothers?

[Injin]

http://www.guardian.co.uk/commentisfree/2011/may/17/greece-debt-crisis-lehman-brothers

It was less than three years ago that the failure of Lehman Brothers sent tremors through the global financial system, threatening the existence of every major bank and triggering the most severe economic crisis since the Great Depression. As Europe's policy elite met for fresh crisis talks today, the dark fear that haunted everyone around the table was this: if the bankruptcy of a middling-sized Wall Street investment bank with no retail customers could have such dire consequences, what would happen if the Greeks decide they have had enough and renege on their debts?

Could Greece, in other words, be the new Lehmans? Given the structure of modern financial markets, with their chains of derivative trades and their pyramids of debt, there is only one answer. Greece could certainly be the next Lehmans. The likelihood that a Greek default would pose a threat to the future of the eurozone as well as to the health of the world economy means it has the potential to be worse than Lehmans. Much worse.

Given that gloomy prognosis, the European Union and the currently rudderless International Monetary Fund know something has to be done but are not quite sure what.

To be fair, it's a tough one. A single currency that involved a hard core of European countries that were broadly similar in terms of economic development and industrial structure might just have worked. Bolting together a group of 17 disparate economies with different levels of productivity growth, different languages and different business cultures was an accident waiting to happen, and so it has proved.

The weaker countries, on the fringes of the single currency area, have not been able to cope with the disciplines involved in giving up control of their interest rates and their currencies, with the problem going much wider than the three countries – Greece, Ireland and Portugal – that have sought bailouts. Spain's housing boom and bust was the result of the pan-European interest rate being too low; Italy's increasing lack of competitiveness stems from a lack of exchange-rate flexibility.

It was also clear from the outset that the structure of monetary union would result in struggling countries being subjected to deflationary policies. Since the eurozone is not a sovereign state there is no formal mechanism for transferring resources from rich parts of the monetary union to the poor parts. Nor, given language barriers and bureaucratic impediments, is it easy for someone made unemployed in Athens to get a job in Amsterdam. Instead those countries seeking to match Germany's hyper-competitive economy have to cut costs, through stringent curbs on wage increases and fiscal austerity.

This was the plan A that was wheeled out for Greece last spring, when it became the first eurozone country to run into trouble, and it has been repeated for Ireland and Portugal. Plan A involved providing Athens with a bridging loan so that it could continue to meet its debt obligations, while at the same time insisting on draconian steps to cut Greece's budget deficit. Pain plus procrastination: the traditional recourse for policymakers who lack imagination, as Europe's have done throughout the sovereign debt crisis. Clearly, plan A has not worked, as anyone who has piled up too much debt on their credit card could have predicted.

More at the link....

Printy Printy.

[50sQuiff]

http://www.guardian.co.uk/commentisfree/2011/may/17/greece-debt-crisis-lehman-brothers

Printy Printy.

I think you left out 'state failure'

[mattyfc]

http://www.guardian.co.uk/commentisfree/2011/may/17/greece-debt-crisis-lehman-brothers

Printy Printy.

Not much new here. Printy Printy is clearly the least painful and by far the easiest solution. Without Germany in the EZ I am pretty sure this would have been done already.

After the Weimar experience Germany is not keen to wheel out the printing presses, not surprisingly. Someone is going to have to pay the debt, Greece does not have the economic capacity to pay it, which leaves other EZ tax payers or the printing press. Lending more money is obviously storing more problems up for later.

The EZ have plenty of problems but absolutely no solutions at present.

[The Ayatollah Buggeri]

As Europe's policy elite met for fresh crisis talks today....

...at which the topic of conversation was unlikely to have been Greece...

[Deckard]

http://www.guardian.co.uk/commentisfree/2011/may/17/greece-debt-crisis-lehman-brothers

Printy Printy.

Why print when you can reprofile Greek debt?

[mdman]

Soft restructuring, also referred to by EU officials as “reprofiling,” is a “pure extension of maturities of existing bonds without changing the principal and the interest rates,” German Deputy Finance Minister Joerg Asmussen said in Brussels yesterday. Such a setup would be designed to avert a chain reaction of claims linked to credit-default swaps.

Brilliant - the private bankers who bought these bonds have insured themselves with private CDS, no doubt written by other private financiers with zero capital, as was the case with AIG. And it's taxpayers who are to pay them in full for their mistakes.

We are long past the time where these scum should be swinging from lampposts

Link

Edited May 18, 2011 by mdman

[Bloo Loo]

Not much new here. Printy Printy is clearly the least painful and by far the easiest solution. Without Germany in the EZ I am pretty sure this would have been done already.

After the Weimar experience Germany is not keen to wheel out the printing presses, not surprisingly. Someone is going to have to pay the debt, Greece does not have the economic capacity to pay it, which leaves other EZ tax payers or the printing press. Lending more money is obviously storing more problems up for later.

The EZ have plenty of problems but absolutely no solutions at present.

devaluation is nOT the issue they are afraid of.

Its naked CDS in the Eurozone...AIG bigged anyone:

"Soft restructuring, also referred to by EU officials as “reprofiling,” is a “pure extension of maturities of existing bonds without changing the principal and the interest rates,” German Deputy Finance Minister Joerg Asmussen said in Brussels yesterday. Such a setup would be designed to avert a chain reaction of claims linked to credit-default swaps. "

[interestrateripoff]

...at which the topic of conversation was unlikely to have been Greece...

Are you suggesting they will all have been taking the p155 out of DSK rather than discussing Europe's macro economic problems?

Edited May 18, 2011 by interestrateripoff

[scepticus]

Printy Printy.

Bit wonkish for you.

[R K]

devaluation is nOT the issue they are afraid of.

Its naked CDS in the Eurozone...AIG bigged anyone:

"Soft restructuring, also referred to by EU officials as "reprofiling," is a "pure extension of maturities of existing bonds without changing the principal and the interest rates," German Deputy Finance Minister Joerg Asmussen said in Brussels yesterday. Such a setup would be designed to avert a chain reaction of claims linked to credit-default swaps. "

No wonder Timmy doesn't want haircuts and DSK out of the way.

He'd be picking up the tab.

[Deckard]

No wonder Timmy doesn't want haircuts and DSK out of the way.

He'd be picking up the tab.

I really don't understand your logic there, RK.

Where is the evidence that DSK was pro-haircuts?

If this is a setup, it must be a French one - although I agree they wouldn't have pulled it off without US assistance.

Edited May 18, 2011 by Greener Pastures