Greek Crisis Warrants Close Scrutiny


As Greece’s prime minister faces a confidence vote, amid protests (some would say riots) in the streets against austerity measures that are a precondition to obtaining another wave of bailout money needed to stave off default, a recent article called “The euro crisis: A second wave,” published in The Economist magazine, says that the bail out strategy for Greece and other peripheral economies is not working, that the whole European integration could unravel, and that the repercussions of that would threaten the United States and global economy.

If the confidence vote is yes, austerity measures are passed, and Greece receives an anticipated 12 million euros to pay its debts coming due in September, Greece still needs an even bigger bail out package to survive the rest of the year, according to Graham Bowley’s New York Times article entitled “Vote of Confidence Is Only the First Step for Greece.”

If Greece defaults, the IMF said in a report, there is a risk of contagion to other countries. “”There is every possibility that at the end of this Greece is going to default anyway,” Kenneth S. Rogoff, former chief economist at the IMF, now a Harvard professor, was quoted as saying.

According to the Bowley NYT article: “There are also worries about the exposure of American money market funds, which have large holdings of debt issued by European banks,” which are large holders of the debt of Greece and other shaky European nations.

If there is a vote of no confidence, “the pop on a yes will be small compared to the cataclysmic blow on a no that would set up a test of the old 9/15/08 ‘Lehmans’ SP500 1250 level,” according to the WSJ’s MarketBeat column entitled “What Happens to the Euro, Stocks If Greece Votes ‘No’?” MarketBeat continues: “Market technicals are then widely primed for a stumble down the elevator shaft” if Greece’s confidence vote takes a wrong turn.

While opinions vary about the outcome of the sovereign debt crisis, these warnings should not be ignored.