“Some people seem to think there’s no trouble just because it hasn’t happened yet.
If you jump out the window at the 42nd floor and you’re still doing fine as you pass the 27th floor, that doesn’t mean you don’t have a serious problem.” – Charlie Munger
For anyone paying any, even casual, attention to the Greek –and the-yet-to-occur-but-will-most-likely-happen corresponding restructuring of the European Union – financial crisis, Greece not only currently teeters on the brink of default, but now, as of this week, stumbles drunkenly on its threshold.
First, the obvious: Greece’s historic record bond yields have forced the markets to recognise and read the proverbial financial writing on the wall.
Friday’s trading patterns seemingly prove (beyond a doubt?) now that, political and economic optimism aside, there’s little question Greece, for the first time in modern global-economic history (given the size and influence of Greece’s economy), is set to default.
What Wall Street’s missed up to this point, however, is the consistent stream of POLICY indicators that has been, since last year, signaling that there is no “saving grace” or economic “magic bullet” for Greece.
The most recent and telling one: Bloomberg reports that “Germany Is Said to Prepare Plan to Assist Banks If Greece Defaults on Debt.”
That’s right: the country most expected to save Greece (never mind, of course, Germany’s 83% debt-to-GDP ratio) is preparing itself for Greece’s impending drop into the economic abyss.
Ergo, while the markets will observe, obsess over, and point knowingly to Friday’s yields as a sign the Greek financial skies are falling, the political realities of the European Union guaranteed Greece’s default long before this month. For while Germany may have propped up and otherwise supported the European Union’s deadbeat member countries up to this point, there is only so much financial peril German citizens can and will endure before caving and declaring “enough is enough” The fact that Merkel, and by extension Germany (the final stop between the Greek economy and default), is now prepping the nation’s banks for Greece’s default could not be a clearer economic and political signal to the market that “bad times are coming” for not only Greece, but the entire European Union.
What’s most interesting, however, is the future of the European Union, post -Greece’s-seemingly-inevitable default. For while Greece is today’s “problem Economic child,” its soon-to-be-failed brethren (i.e Italy, Spain, etc.) are close behind, busy elbowing for a place at the default table.
Let’s see what happens once Germany officially steps out of the way of the cliff.
Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at [email protected]
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