A Greek default is all but certain, now. It is just a matter of time and will likely happen before 2012. It is just now being discussed publicly, as is how to kick Greece out of the Eurozone group. The problem is that the organizing documents prohibit it.
Greece has only depression in their future unless they are put back on their own currency which will be devalued, cutting the value of their debt and helping exports to revive their economy.
Still, in all their supposed austerity programs, according to CNBC not one Greek government worker has been laid off. Plus, cheating on taxes is apparently widespread and government pensions are still extremely generous. How about retiring at 50 and if you die, your fat pension continues to be paid to your single daughter?
The risk of contagion is rising too, as reflected in the bad performance of European stocks, especially their bank stocks and the fact that borrowing costs for Spain and Italy keep rising. According to today’s Wall St. Journal, with the Greek default alone, France’s three largest public sector banks will become insolvent. Two of them own Greek banks. With contagion, it becomes 2008 for Europe all over again, maybe worse. That cannot help but spill over to the rest of the world, including the US.
That may be why the French stock market is only 11% above the depths of the 2008-09 crisis and why the German market has fallen 30% in the last 7 weeks.
If you haven’t read the newsletter for September yet, it is a primer on the European troubles. Just click on Newsletter at the top of the home page.