Greek lightning won’t stay in the bottle

If the economic observers are right, the birthplace of Western civilization is a ticking financial timebomb that will mean the end of the Euro as we know it. This week Standard & Poor's downgraded Greece to "CCC", the lowest credit level possible, on fears of a default. And China’s not very happy about the situation. Two scenarios are likely. The first involves yet another bailout package that would keep Greece afloat. That has stalled. The second is a two-part default with part one by the end of 2013 and part two by the end of the following year. According to currency strategist David Mann, the market has placed the likelihood of a Greek default at 75 percent.

As usual, it’s governments versus bankers. For any second bailout to get the approval of Europe’s largest economy, Germany, public sector support is a must. The European bank is saying it will see any private sector participation in the plan as coercion and call it a selective default. So how the bailout will happen without obliterating the country’s credit score is anyone’s guess. But contagion looks like it’s in the offing. 

Moody’s is examining three top level French banks for their exposure to the probable Greek default.

The Greeks themselves are not taking the austerity measures required for a second bailout lying down. A phalanx worthy of their ancient forebears turned out in force armed with ‘petrol bombs’ turned out near the parliament building to vent their anger at lawmakers. This has led the Prime Minister of Greece to start doing the cabinet shuffle in order to maintain a semiworking government.

The reality is that government defaults are pretty common occurrences. It’s the sovereign equivalent of bankruptcy. The current crisis was also a result of creative practices involving cross-currency swaps by … wait for it … Goldman Sachs, which helped the Greek government paper over its debt so it could appear to be in line with its debt level obligations under its EU membership. Much of Greece’s current woes legitimately may be of its own making, but if default worked for Venezuela nine times during a 175 year period, the world is probably protesting too much over a possible Greek debt conflagration.