Not long ago, European leaders insisted that Greek default was unthinkable. Many now acknowledge the possibility. The markets are a bit further along. They have discounted it. But note the nuance in the preferred approach – it is to be a default “within the euro”.
European banking exposure to the private sector -- corporations and households -- of the “peripherals” is a multiple of that to the public sector -- government debt -- of the area. These numbers are not secret. They have appeared in the press. The associated risks are what used to be called “cross-border risk” – a term well known to US bankers of a certain age who once recklessly lent dollars and pesos to the Mexican public and private sector - only to discover that sovereign risk involved not only the risk that the sovereign might not pay but also that the private sector might be prevented by law or currency changes from doing so.
It would appear the German cabinet has grasped the gory details. They must find the courage to explain it to their constituents. For the German public needs to understand that their interests lie not in hounding the Greeks out but in keeping them in. For Greek default within the euro is manageable and will be managed. Greek default outside the euro involves risk to a different order of magnitude.
Full article (FN subscription required)
© Financial News
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article