Greece has defaulted on the IMF loan. As much as it was expected, when midnight struck in Brussels a sense of disbelief seemed to blanket Europe. The truth of the matter is that few people expected the Greek debt crisis to reach this point. Right up until the last minutes before midnight, many people were holding out a somewhat unrealistic hope that an extension or entirely new bailout could be crafted. Greece even took an eleventh hour proposal to the Eurozone, however the appeal was rejected and labeled ‘unrealistic.’ Midnight came and went. Now Greece has the unfavorable distinction of being the first European nation to have missed an IMF payment.
So, what will happen next? As the referendum date grows nearer, uncertainty will grow. The European Union is entering uncharted territory. On the surface, EU financial chiefs do not appear to be overly panicked by the situation. Quite the opposite, in fact. They seem to firmly believe that the defenses they’ve put in place will prevent instability in Europe if a nation leaves the Eurozone. In spite of the defenses being erected, EU leaders have to face the possibility of a European nation beset by financial misery abandoning the Euro currency.
Global markets have, predictably, not responded well to the Greek drama. How they respond tomorrow on the first day of post-default trading remains to be seen. Chances are, there will be much volatility as traders and investors wait to see what direction the crisis takes. There is much speculation about what consequences the default has for Europe and beyond. It’s quite evident that the immediate effects in Greece are very negative. Cash is dwindling and the banks remain closed. Long lines at ATMs and supermarkets are the norm, even though cash machines are, for the most part, already empty.
Beyond Greece, the real danger is that the Greek default will turn out to be a spark that ignites a very large powder keg. Will the default be a ‘Lehman Brothers’ moment, a ‘Sarajevo moment’ or something altogether different? There are a number of scenarios that take the default beyond a pure economic crisis. Some are more frightening and realistic than others.
Tomorrow, I will post more on the possibilities as well as provide more updates. The final Defending Poland article will also be posted tomorrow evening. Apologies for the long delay, but with Greece at the top of the headlines, my focus has been there.