I\’m not sure I quite understand this:
That\’s because the threat of a disorderly Greek default – which could still take place inside the euro – has the potential to trigger a cascade of bank runs and knock-on crises across the eurozone whose impact could dwarf the Lehmans crash of 2008.
OK, it\’s Seumas on economics so obviously it\’s wrong.
But I\’m not sure that I actually get it. Why would a Greek default knock over the banking system?
The private sector holders (ie, the banks) of Greek sovereign debt all too a 70% haircut only a few weeks ago. I\’ve not checked but I think the new debt issued now trades at 50% or less of par.
So the purely private sector effect of a Greek Government default is going to be trivial.
Sure, all the Greek banks go bust in such a default. But there cannot be a single European bank that has not written down any such Greek banking \”assets\” to something equivalent to the value ofnthe sovereign paper, ie spit.
And it\’s not as if the banks haven\’t had 3 years to prepare for this either.
The ghastly losses will be in the official accounts: the ECB, the EFSF and so on, where Greek sovereign paper is being valued at par (I think). And the Target 2 system will go kablooie: but that again is central banks, not private ones.
As far as I can see, and I\’m sure I\’m overstating this but still, the risks and costs of a Greek default have now been almost entirely socialised. The private sector banks have already taken their lumps, written down their Greek assets and the difference between the current 15% of original par value and 0% in disorderly default is, umm, not very much.
Agreed, it all becomes rather more scary if Spain and Italy etc follow but Greece itself I just can\’t see it.
So, where am I going wrong?