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"If it was a horse, I'd shoot it," once said a wise auto mechanic to a customer who brought his...
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Thursday, April 21, 2011, 10:54 AM ET"If it was a horse, I'd shoot it," once said a wise auto mechanic to a customer who brought his jalopy in for repair. A corporate turnaround manager might say the same about Greece, where the sheer level of debt is likely to overwhelm any effort to better balance fiscal matters.
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Since the public was "assured" that Greece "was ok" and wouldn't be allowed "to fail" I don't see why anyone would believe what they are now saying about Spain and the others. The subprime problem was also 1% of US GDP.
I have no idea what the will happen if Greece goes but don't think it should be dismissed because of the smallish size of its economy. Just a shudder in 2010 was enough to send markets into a serious swoon which they didn't really recover from until QEII was announced.
Greek default is -good- for the Greeks at this point, and bad for everyone else. That's probably why the leadership in Greece is fighting so hard against default...
The state of Spain's finances are much better than Greece, or Ireland, or Portugal. The domino theory has already run out of gas. Even the new regime in Ireland, after much sound and fury, is playing along with Europe.
You might note, also, that a lot of Europe's recent economic reports (like UK recently and today) are coming in above expectations, so austerity isn't exactly proving the death knell that was forecasted.
Manufactured hysteria is a trading scheme, and a very profitable one, too. But, once it's had it's day, then, the traders look for new targets. You can note how, now, restructuring talk in Greece or Ireland provokes only yawns, as it should. Speaking of those other two countries --Ireland and Portugal-- when they are added to Greece, the comprise less than 3% of overall EU GDP.
The world hasn't and won't end.
That does not change the fact that the result of a Greek, Irish or Portuguese default, does indeed amount to more than a "hill of beans"
I have never said, by the way, that the world will end. Spain and Greece have defaulted many times without that happening.
Say Greece restructures in an orderly manner (somebody will have to book the losses, assume it is Germany). One year from now, someone rediscovers that Spain has not really cut expenses and their real estate problem is as big as ever (see my response to Tack above). At that time, some EU official will say that "Spain will not be allowed to fail" which is the SAME thing they said about Greece not too long ago.
I do not know about you, but I would not want to hold any Spanish bonds in that scenario and there are plenty of them outside of Spain to go around. The total foreign debt is too large even for Germany.