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Greece: what next?

Being the German equivalent of the Sun, there is no particular reason to believe that Bild has got any special hotline to Langley, Virginia. But for what it’s worth, the claim that the Central Intelligence Agency sees a military coup in Greece as possible has recently surfaced among that publication’s endless stream of topless girlie pics.

Even Britain’s rather more staid Investors Chronicle has run with the story, so the idea is obviously being taken seriously in some quarters, and there’s no denying that the colonels have got form on this one. If the rioting gets out of hand and threatens a re-run of Argentina in early 2002, a declaration of martial law cannot be out of the question.

Like countless other journalists, my working days this week have been pretty much taken up with reporting on what is happening to the Greek economy, and the implications for the rest of us. Talk of  ‘the eurozone’s Lehman Brothers moment’ is widespread in the City, and does not appear obviously wide of the mark. Yes, things are that serious.

On Thursday, the European Union and the International Monetary Fund  backpedalled on the previous hardline terms for a temporary €12bn bailout, but that just defers the crunch until later in the year, most likely September.

Last time I checked, credit default swap prices implied a 78% likelihood of de facto default, more than likely dressed up under some face-saving euphemism.

If Greece defaults – when Greece defaults, I guess – the consequences will be felt across Europe and beyond. Not only will every bank in Greece become insolvent overnight, but the losses among banks elsewhere might see them fail to meet capital adequacy requirements.

British banks are not thought to be first in the firing line, but they will certainly take a hit. There is also a strong chance that the European Central Bank itself, which has extensive exposure to Greek government and bank debt, will become insolvent.

Moreover, Portugal and Ireland are bound to consider their positions. If the Greeks get away with it, why shouldn’t they?

There is also the obvious question of what happens on the streets of Athens. Reports from those on the spot – most notably the BBC’s Paul Mason – suggest a climate of radicalisation, in a country with probably the strongest far left and the most militant working class in Europe.

In other words, austerity is going to be difficult to sell. When it comes to making predictions, the CIA is better placed to do that than I am. But it may be that the colonels won’t get things entirely their own way.

One Comment

  1. Derek Emery says:

    Does the ECB have any money of its own to become insolvent with? Isn’t it’s money borrowed from countries such as Germany? Prof Morgan Kelly reckons Ireland will be bankrupt by 2015 under the present ECB debt regime
    EU politicians are refusing to face up to the problems directly caused by creation of the Eurozone and instead apply short term fixes. This approach cannot work long term and time is running out.

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