Mark O’Byrne writes: Recent official soundings from the UK and German governments saying that exposure to Greece is limited only underscores the depth of denial, ignorance and lack of consensus in hte Euro area. A Greek exit from the euro would profoundly weaken the euro experiment and create a dangerous precedent for all future crises in the region.
The European economy is the largest middle class economy in the world. With over 400 million relatively affluent consumers it represents a massive portion of the net global economy and as such a breakup of part of it would be felt across the world in credit spreads and capital decisions for years to come.
This would not have been because of Greek exit, but rather because of the inability of the authorities to manage the crisis as risks initially built up, then as bail outs were designed and implemented and then as these efforts surely failed.
We are witnesses to an epic failure of planning, statecraft and social justice. Regardless of where your politics lie, these elements are critical for a modern globally connected economy to function.
The geopolitical backdrop is one of suspicion and hostility in the form of a festering proxy war between western and Russian interests in Ukraine and regional crisis and humanitarian catastrophe in the middle east as Syria and Iraq descend into stateless anarchy. These factors reduce the odds of a successful solution in Greece being found in time.
The share value of Greek banks has cratered. In what is probably the worst performance for the sector on record, the shares of all four major banks have crashed.
Forbes list five main causes for the collapse:
- Deposit flight has accelerated.
- ECB liquidity could be cut off.
- Potential public and private debt restructuring.
- Low profitability.
- Reliance on deferred tax assets – Forbes explains it as an over-reliance by Greek banks on liquidity from the state.
The real danger is that the Greeks themselves lose confidence. There are tentative signs that money is again being sent abroad, as it was in mid-2012. Nikolaos Panigirtzoglou at JPMorgan points out that €350m was sent from Greece to Luxembourg money funds since the start of last week.
Concerns about bank holidays and also a return to the drachma have returned and Greeks are looking for ways to prevent further destruction of their wealth. Gold is ebing bought. For Greeks, Storage in Switzerland remains a favoured way of owning gold.