Echoing German Finance Minister Wolfgang Schaeuble’s lackluster predictions for the highly anticipated meeting of eurozone leaders this weekend, Deutsche Bank’s Adam Sieminski gives us a history lesson on why we shouldn’t be expecting an end to the crisis anytime soon.
In fact, a more accurate estimate would be years from now, if previous defaults are any guide.
Here’s his grim prognosis (emphasis added):
As our Credit Research team keep reminding us we are still in the early phases of Europe’s sovereign debt crisis, the idea of an early resolution this weekend would, on an historical basis, seem unlikely. In fact the last time Greece defaulted in 1932 it was not until 1964 that the conditions of default were resolved. Although this highlights the extreme if one considers default periods between 1800 and 1945, the average duration of default was a more modest six years and in the post war period up to 2006 the average duration of default was just three years. This may put the current crisis in some sort of perspective and that the comments by German officials yesterday that Europe’s sovereign and banking sector crisis will not be resolved by just on European Council meeting this weekend seems realistic. However it has led to some reversal in the recovery in risky assets that has been underway over the past few weeks.