Debt trauma in Europe

Here is what Greece is up against:

chart-3

Today the Tsipras government ordered local governments to move their funds to the central bank.  As you can see, Greece has payments of almost one billion euros coming up by May 12 and €2.5 billion all-toll by June 19, so the “confiscation”, as the Globe and Mail called it, probably has to do with that.  The problem here is that €2.5 billion is only a small part of what Greece owes.  The total is on the order of €317 billion euros as follows:

chart

If meeting this €2.5 billion payment requires such radical measures,  what will it take to repay the other €314.5 billion?

European Central Bank governor Christian Noyer said in a Le Figaro interview published today that a default on the country’s €317-billion of obligations and a euro exit would be traumatic for the currency area and plunge Greece into a major crisis. The IMF’s Christine Lagarde warned Greece yesterday that it needed to make its loan payments to that organization without delay.  She said “the fund’s board hasn’t approved a delay of payments for three decades and no advanced economy had ever officially requested such flexibility,” according to a Wall Street Journal report. Back in February just after Syriza came to power, President Obama said, “You cannot keep on squeezing countries that are in the midst of depression.”  He might have just as easily used another American expression: “You can’t get blood from a turnip.”

Reading the various reactions today sent me in search of an old Barbara Tuchman observation (from her Pullitzer Prize winning study of World War I – The Guns of August) that was rattling around the back of my mind.

Here it is:

“Some are made bold by the moment, some irresolute, some carefully judicious, some paralyzed and powerless to act.”

That’s about the size of it.

Perhaps, we have become so accustomed to the constant clamor over Greece that we have lost our ability to sense when the ground might be shaking – and well it might be.  Noyer’s warning needs to be viewed as important as he is not the type to be easily shaken by crisis (having seen his fair share of this sort of thing over the years).  We should remember that the authorities in the United States thought that the rug could be pulled on Lehman Brothers without major repercussions.  We all know how that worked out. Too many have said the same about a Grexit.  It is difficult to believe that a €317 billion default would not have major repercussions in financial markets – on both sides of the Atlantic.

MK

 

 

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