THE TELEGRAPH: The Greek horror story should scare us all, says Edmund Conway. Its problems are not unique.
It has all the ingredients for a perfect Hollywood sequel. The cliffhanger plot kicks off right where its predecessor ended; the cast is stellar, some characters from the original reprising their roles. But this time the stakes are even higher, the mood even tenser.
Greece is on the brink of bankruptcy. Based on almost any yardstick, markets are now betting that the government will default on its debt. At a staggering 18 per cent, the going rate to borrow for a mere two years is similar to the penal rates credit card companies charge their dodgiest customers. The government, International Monetary Fund and European Union have promised, vaguely, to hand over the necessary cash to help tide the country over, but to no avail.
It would be all the more shocking had it not happened before. But Greece's problems today are merely Lehman Brothers redux. This is Global Meltdown 2. Granted, this time it is a country, rather than a mere bank, that faces collapse; this time, the victim may really be too big to fail. But the pattern is eerily familiar: the money starts to run out; investors realise with horror that there is a real chance of failure; the politicians promise that they will stand behind the institution; in a last-gasp attempt to halt the disaster, they ban short-selling; eventually the law of gravity proves irresistible, investors stage an effective run on the banks and the end is nigh.
Faced with such a scenario, there are two options: confront the crisis, knowing you simply may not have the firepower to deal with it, or go running, screaming, for the hills. The head of the Organisation for Economic Co-operation and Development, Angel Gurria, has chosen the latter path, declaring that the contagion is spreading "like Ebola... when you realise you have it you have to cut your leg off in order to survive".
Before we lapse into amateur dramatics, however, let's establish the facts: the market for Greek government debt has effectively frozen, much as the money markets did worldwide in 2007 – the initial trigger point for the crisis. Its banking system, stacked high with those same government bonds, is effectively insolvent. The country had been due to return to investors on May 19 to raise money; if a bail-out cannot be agreed by then, Greece will have no option but to default. But even that deadline is increasingly academic: the country has fallen victim to a run, and as anyone who watched Northern Rock's demise knows, what follows is not usually pretty. How did it come to this? >>> Edmund Conway | Thursday, April 29, 2010