The Greek Tragedy is Moving to Act Three

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The battle over how to resolve the crisis in Greece continues. On the one hand, it raises the question of who will pay for the eventual Greek default. Will it be the creditors or will taxpayers in the well off eurozone countries have to absorb the losses in order to keep the banks solvent? In Greece, which is essentially a failed state, it has become an issue of national sovereignty. The conditions imposed on the Greek state, in order to receive financial support, effectively turns over control of the state to its rescuers. This has triggered political unrest and there are also concerns about a run on the Greek banks. Ireland, Portugal and other states are watching this closely and their strategies will reflect what they learn from the Greek experience.

It is easy for most of us to see this as a Greek problem or as a eurozone problem. If things go poorly with Greece and the eurozone it will affect everyone. The US is invested heavily in the banks that hold Greek debt and it is uncertain how US investors will be affected by over $40 billion of credit default swaps that have been traded. Moreover, any slowdown in the eurozone will impact the emerging markets that been producing much of the growth in the global economy and who have been financing much of the debt in the rest of the world.