Eurozone Desintegration: It’s just a question of time

Eurozone Desintegration: It’s just a question of time
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While Greece is again seeking a bailout from the Euro zone members, the probability of witnessing a default of Athens in the next months is increasing. With a quickly deteriorating social stability and no new sources of income in sight, Greece is a potential financial black hole at the short and mean terms. This is probably the last time that Germany accepts again to participate to massive bailout plan to save the Greek economy. Berlin’s domestic politics are under high pressure from its constituents to stop feeding a dying economy with German’s tax payers money. While France is seeking public money to save Greece, Germany insists on getting banks and other financial institutions contributing to the bailout.

Another injection of European money will extend Greek’s economy survival but will definitely postpone its imminent collapse.  When Athens will exit the Euro zone, the contagion outbreak will spread to the other weekest economies first (Portugal, Spain, Italy) affecting also all other players to different extents. Raising interest rates will precipitate the Euro zone economies and will affect the Euro exchange rates.

Here’s an excerpt of an article of the Economist on the current state of some Euro zone economies:

“Italy has the biggest sovereign-debt market in Europe and the third-biggest in the world. It has €1.9 trillion ($2.6 trillion) of sovereign debt outstanding, 120% of its GDP, three times as much as Greece, Ireland and Portugal combined—and far more than the €250 billion or so left in the European Financial Stability Facility (EFSF), the currency club’s rescue kitty. Default would have calamitous consequences for the euro and the world economy. Even if the more likely immediate prospect is sustained stress in the Italian bond market, that will surely prompt investors to flee European assets, making the continent’s recovery ever harder.”

To illustrate the consequence of the collapse of a member of a regional economy like Greece, here’s “a clip about currencies and crises and the new era of risk and instability that comes from interconnected global markets.

The video is excerpted from The Crash, FRONTLINE’s report that unraveled what happened the summer of 1998 when markets panicked. On Aug. 31, 1998 the Dow plunged 512 points, wiping out a year’s worth of gains.

And it all began months earlier with a localized crisis. Asian markets were spooked by what was happening in Thailand and with its currency, the baht.”

Photo Credit: Greece 2004 By Wayne Lam (Ramius) / FlickR