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Here is an article from The Economist outlining the issues that Greece is having with the EU, and the possible effects. Is Greece really that important to the EU economy? What effect could this have globally should there be some dramatic effect on the Eurozone?
http://www.economist.com/node/18681980
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I find it very hard to believe that tampering with Greek debt "would cause a crisis far worse than the collapse of Lehman Brothers in 2008."
ReplyDeleteThe thing I see as the biggest problem was touched on briefly in the article, "the risk of further defaults in Ireland, Portugal and even beyond," and I would add Spain to that list, as well.
I'm not entirely sure how the euro-zone works and whether or not they can just kick Greece out, but if they were to do so, I think it would have some trust consequences. Why would the other countries feel confident that they were in unity with each other?
The problem is that if Greece fails, I can see a domino effect occurring...with Ireland, Portugal and Spain running the risk of following in Greece's footsteps. This could do some serious damage to the euro-zone, specifically to the euro currency.
That said, if they bailout Greece, will they have to bailout the other countries?
The ECB's current answer to the problem is like bailing water out of a boat with a big hole. They are essentially prolonging the inevitable, and it is costing them more and more money. I thought the U.S was slow at making decisions but this is truly ridiculous.
ReplyDeleteInteresting quote from Stiglitz on the matter from Freefall
"One widely held view for the strong response from European governments was that Iceland had exposed a fundamental flaw in European integration: “the single market” meant that any European bank could operate in any country. Responsibility for regulation was put on the “home” country. But if the home country failed to do its job, citizens in other countries could lose billions.”
One would think the EU would have learned the first time.
I agree with Chris, I think this is just a temporary fix that is simply postponing the inevitable which I think is a huge waste of money. I also think Dane brings up a good point in that if Greece fails there could be a domino effect that would have huge impacts on the euro-zone. I don't know exactly how the euro-zone works but this can't be good for the euro.
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