June 17th, 2011
08:38 AM GMT
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(CNN) – From Hong Kong to New York, investors are watching the events unfold in Greece with a dreaded sense of déjà vu.

The reality gap looming in Athens between what ordinary Greeks want and what their politicians can realistically achieve has ramifications that could ripple far beyond the Aegean shores.

The only thing that is certain for now is that the longer the impasse lasts, the more devastating its consequences will be – not just for Greece- but for other cash strapped countries that share the euro as well as Europe’s trading partners further afield.

As the IMF prepares to hand out yet another eye-watering chunk of bailout funds to Greece, it may appear to some like a parent handing cash to a spoiled child - even if they haven’t done their homework.

However the Greeks protesting from the Parthenon to the Parliament this week are not children. They are men and women coping with the most precipitous decline in living standards their generation has known.

Like their fellow bailout recipients in Portugal, their parents remember life under dictatorships and military rule until the mid 1970s. They have fought hard to gain their rights. As such, it’s not hard to see why they are loath to surrender them.

But what many Greeks have come to see as basic entitlements are now deemed a luxury, according to those footing the bill for the country's fiscal excesses. Whether Greeks, like it or not, their nation has been backed into a corner by profligate governments and jittery bond markets.

That corner is only shrinking by the day, thanks to the Greeks' resistance to painful but necessary belt-tightening.

Greece is no longer just the sick man of Europe, it’s the sick man of the world, and a country whose sovereign debt now holds the dubious title of being the lowest-rated on the planet by Standard & Poor's.

Just months ago “default” seemed almost a dirty word, nearly whispered by economists rather than openly discussed. But this week Deutsche Bank strategist Jim Reid went one step further, comparing Greece’s economic limbo to the decline of Lehman Brothers days before the U.S. giant failed.

“We believe the period is resembling the build-up to the Lehman collapse where, although the market was nervous, virtually everyone expected a last minute buyer,” Reid wrote in a note to clients.

“It’s difficult to continually kick the can down the road when the can is breaking up in front of your boot.”

Greece’s financial mess matters far beyond its borders for various reasons. It threatens to undermine the stability of a major trading currency shared by 16 other EU members. It risks limiting larger European countries like Spain and Italy’s ability to borrow affordably in the bond markets.

What’s more: a Greek default could take a bite out of the balance sheets of some of Europe’s largest banks, which have invested heavily in the country’s risky, yet high-yielding debts. Lenders in Europe are still trying to shore up their capital three years after the onset of the credit crunch.

The Greek knock-on effect could hit the fast-growing economies in Asia. “Greece itself is not terribly big in the big scheme of things but what worries people is the uncertainty with a default that could spread through the global financial system,” Frederic Neumann, senior Asian economist for HSBC, told CNN.com’s Kevin Voigt.

“After the credit crisis, we know how interconnected the global financial system is … are we looking at a re-run of the credit crisis, triggered not by a bank but by a sovereign debt default? That’s the fear right now,” Neumann said.

Asian central banks and businesses are worried, too, that a default could spark a slowdown in the European Union. “Europe is a bigger export market for Asia than the United States, which is something people often forget,” Neumann said.

Greece's debt is expected to account for over 150% of its gross domestic product this year. And just like failing to zero that credit card bill at the end of the month, with double-digit interest to pay, the amount owed isn't going to get any smaller.

As of next month Greece is scheduled to start paying back its borrowings – €123 billion of which will mature between now and 2014. Record euro-area yields of over 28% on its bonds mean that issuing fresh obligations on the open markets to refinance its existing debt is no longer an option open to Greece.

This means that if it does not secure cash from the IMF, the EU and the ECB – the so called “Troika” – the country will soon default.

So while the pain of cuts is evident in the violent protests in Greece, the stakes are high for the rest of the world, too. Just as the fall of Lehman Brothers triggered a much larger financial crisis, market watchers are worried that Greece may only be the first domino to fall.

soundoff (24 Responses)
  1. Mike

    Greeks should hang their heads in shame. No one pays income tax, they should but they avoid it. This has been going on for years. Now they are protesting that the Govt. Is cutting plans and benefits as it has no money. If you paid your taxes you would not be in this position. Stop complaining and work as a society.

    June 17, 2011 at 1:12 pm |
  2. Karl

    Unfortunately, this is somethign the Greeks themselves caused. They are very pretentious and ostentatious persons always looking down their nose at the wiser (and wealthier) tourists who come to their land. Maybe they will get some humility now like their grandfathers who were proud to take America's Marshall Plan. If they were not so smug, I might feel sorry for them, but I don't as they continue to be cold and cruel to their immigrants.

    June 17, 2011 at 2:00 pm |
  3. Alex

    Only rich people do not pay taxes. The vast majority does.
    Only companies (local and foreign) do not pay taxes because they bribe politicians.

    Even if what you say is the case why should they? They watch big companies that they do not pay for their business in Greece taxes. Simple example is a German construction company that build the airport. Instead of paying 35% tax just paid 4%. Moreover their original offer to build the airport was in Deutsch mark 1.7bn. No one knows how when the deal was finalized that amount was in euro. Double the price.
    I can write a book with similar examples of foreign interest and corrupt politicians that lead to the current situation.

    If your hope is to hang our heads in shame, this will never happen.

    We do not owe nothing, we do not pay nothing, we do not sell nothing.

    June 17, 2011 at 2:19 pm |
  4. Euros

    The Euro was a bad idea from the get go. When you have certain nations pulling their weight and many other smaller ones along for the ride this outcome was inevitable.

    Greece will eventually go under and the dominoes will fall.

    June 17, 2011 at 2:31 pm |
  5. Advocate09

    It's about time the world has to realize, these people are not Greeks, they are Byzantines.

    Byzantine – A term describing any system that has so many labyrinthine internal interconnections that it
    would be impossible to simplify by separation into loosely coupled or linked components.

    The city of Byzantium, later renamed Constantinople, (today's Istanbul), and the Byzantine Empire were
    vitiated by a bureaucratic overelaboration bordering on lunacy: quadruple banked agencies, dozens or even
    scores of superfluous levels and officials with high flown titles unrelated to their actual function, if any.

    [Edward Gibbon, "Decline and Fall of the Roman Empire"].

    June 17, 2011 at 2:37 pm |
  6. Manos

    Advocate, you forgot: "Dubious and surreptitious manner of operation" [- Webster's Dictionary

    June 17, 2011 at 2:59 pm |
  7. Mike

    The Federation of Greeks Industry study recently estimated that $30 billion euros of tax is avoided by individual taxpayers every year in Greece. Yes $30 billion. If you know Greece you know everyone tries to avoid tax and this attitude has destroyed your economy. Stop blaming the government for the peoples' corruption. Big business has little to do with it.
    It is indeed shameful. I hope the rest of Europe stops financing you.

    June 17, 2011 at 3:23 pm |
  8. Steve

    @Mike: It's not that people get and spend money without paying taxes.
    It's that the greek government applied some measures that effect trade in a bad way.
    The tax a business has to pay to the state is so much that businesses can't make profit anymore,and thus they bankrupt leaving people jobless.People end up not paying taxes,because they don't have any money at all to spend,and poverty and unemployment rates skyrocket.

    June 17, 2011 at 3:43 pm |
  9. silkmaze

    I have to agree with Mike. The Greeks, lived the high life for years and years, and now, having been presented with the bill they are complaining that no-one stopped them from spending all that money.

    Here is a fact of life for Greeks – There is no such thing as a free lunch.

    June 17, 2011 at 5:06 pm |
  10. Henry

    As per the comment made by Mike, "Greeks not paying taxes" is primarily a blanket statement. Second, Greeks not paying taxes is only a problem at his point in time because Greece is a European Union member. Otherwise, Greeks not paying taxes prior to membership was not a problem. The EU is a flawed organization. Economically weak nations have no business being part of a team filled with strong economic 'fiber'. It just does not work. Greek lifestyle is just something nobody can modify because it's culture. Live and let live , Mike.

    Greek citizens work and contribute to their own society the way they deem approriate. They have been in existance for a very long time as a society. Again, it's the demands of the stronger members in the EU that have a strangle hold on Greece.

    Greek financial institutions have been 'cooking the books' for YEARS. Greece is not the only EU member that has done
    so in order to gain EU membership.

    I personally disagree with your statement "Greeks should hang their heads in shame. No one pays income tax,"[Mike].
    It is the corporations, investment firms & bankers that should hang their heads in shame. I will include politicians as well.

    Another person to be shamed is ECB president Trichet. His monthly rhetoric about the Euro [currency] and EU policies has propped up the euro currency value falsely. The euro is over valued by about 11-16% versus the USD. Today the eur/usd is 1.4270. It should be @1.16. The euros value is manipulated against many currencies. Secondary to this manipulation are speculators in the market. They drive up the value as well as down. But, that's just the nature of contemporary global economics.

    Now with that said, when Greece defaults, that's right, when it does, not if, the value of the euro will drop quickly.
    The Eur/Usd pair will fall to 0.88. Not over night but, will depreciate in value briskly within a matter weeks. There will be a lot of panic selling of the euro currency. Flight to safe haven currency like the USD will ensue.

    Finally, don't forget what happened to Iceland. Many nations had investment holdings with Icelands banks.
    Bailouts in turn result in painful austerity for a nation. It is better to default because economically it is a healthy result.
    Greece is better off leaving the EU not for reasons of punishment, but rather a suitability. Many current EU nations became members by only half of voters wanting to be EU members. Close to half of the people dont want to be EU members. Membership has increased the cost of living for everyone. The vast majority of citizens in any EU state has difficulty covering daily living expenses. Having lived in a few of these countries before the EU, life was stable and people seemed to be more content than now.

    MIke, don't bash the common citizen of any country, it's just not right. Bash the elite and the policy makers. They run the countries. We work[slave] for them.

    P.S. Taxes only work if they are distributed appropriately towards municipal programs where needed. I wouldn't pay taxes either if I knew my government was not putting funds back to the state system and making risky offshore investments. It would be my way protest against a corrupt government. Think about that.

    June 17, 2011 at 5:25 pm |
  11. Henry

    I want to express my opinion about Greece and it's people in general seperate from my previous comment. Greek people are very nice. Have you ever socialized with any Greeks, Mike? I recommend you take a vacation to Greece and see the beautiful geography and coastlines. You will enjoy the climate as well. Greeks are hard working and have close family ties. Greek cuisine is another aspect of Greek culture highly recommended. Mike, I believe you lack insight to Greek culture. You are out of touch. I'm not of Greek nationality, but from my own experiences whether it be direct or from studies, I have only good to say about Greeks and your opnion, which it is really and not fact, does not describe Greeks accurately. Greeks indeed are hard workers.

    Mike is just picking on the weakest link at the moment. I don't believe MIke dislikes Greece, it's just the nation that is filling the shoes of the 'bad guy' at the moment. I will be looking for your comments about Portugal, Ireland and Spain accordingly when they pose a serious threat to world economy. Proabably as soon as Moody's rating for them falls to ccc or D.

    Default is the best result for everyone in the long run.

    By the way, I don't have any holdings in euro assets nor do I hold anymore euro currency. Sold euros and bought usd.

    Karl, your comment has no bassis what so ever to this article. You don't have a clue and talk rubbish.

    June 17, 2011 at 6:06 pm |
  12. Brian

    Greece is caught in a debt trap where interest due accrues faster than Greece's earning abilities. The problem is Greece has been consuming at a higher level than their economy could sustain, which should be a wake up call for all countries that are dependent on debt to maintain their standards of living. There are no easy answers and I think we are reaching the point where loaning more money is becoming counter productive because all these "rescue" packages do are to kick the can a little bit further down the road and increase the damage when Greece eventually does officially go into default. Unfortunately, the EU is going to punt this one at least until next year when the new "rescue" package gets spent.

    June 17, 2011 at 6:34 pm |
  13. James

    Alex @
    Years ago EU officers find out that Greek Government balance was incorrect. Greeks said that it was a tradition from the Ottoman Empire.They used to say lies to give less tax. They do the same thing for their government also.
    They love good way of life, but do they give the worth of the thing they buy?
    You give votes to corrupt politicians and you selected them.
    Not the Germans or else.
    So, don't blame any one else.It is your fault and you have to work hard and spend less.
    I know it is very very very hard for you to work like the Germans do, but you have to.
    There is no other choice.

    June 17, 2011 at 9:26 pm |
  14. antony

    its ol hia..thnx cnn

    June 18, 2011 at 12:02 am |
  15. Gemi

    How ridiculously entitled is this country? They consider that social benefits which are beyond their means represent an inherent right. They will soon learn the cold reality that in life you need to work and there are no free rides. Too bad this will affect numerous other countries who will suffer as a consequence of the ripple effect from this BS.

    June 18, 2011 at 4:12 am |
  16. Maria

    if Greece is the cradle of civilization, the baby died a crib death

    June 18, 2011 at 4:58 am |
  17. MIke

    Have I ever solialized with Greeks? You mean besides being married to a first generation Greek/Australian? Yes. I also have been to Greece many times as know people and family in Athens and Cyprus.
    Greeks have a cultural aversion to paying tax and do their best to work for cash, instead of paying their dues. Greece is a n ice "beautiful" country if you come from Europe but it's beaches and beauty dont compete with Australia or the South Pacific by far. I can't tell you how thankful my wifes immediate family is that they emmegrated, at least Australia knows how to live within its means...
    The most important thing in all this is that when Greeks accept that their actions and culture are the cause of the problem then they will be able to fix it.

    June 18, 2011 at 2:01 pm |
  18. Gord

    The Greeks are hardly the only "people" that aren't living within their societal means. Look no further than your own back yard to know that our economic system is built on pretty shaky ground when debt and deficit financing is considered a perpetual strategy. It don't work for you and it don't work for countries. Countries can just hold out longer, and the longer Greece is propped up and denial rules the day, the harder the collapse will be once it takes.

    Encourage your government to balance their budgets and quickly. Encourage your friends and neighbours to help themselves by accepting the burden of their expectations through taxes. What else is there to do?

    June 18, 2011 at 4:50 pm |
  19. Wallace Rose

    Thanks eveyone for writing. I find the public's responses more insightful than the report. For all those who had something to say ..... there are those of us who do listen to you. Thank you!

    June 19, 2011 at 7:06 am |
  20. Paul Johnston, PhD Economics

    The REAL TRUTH is there are NO COUNTRIES anymore, ONLY CORPORATIONS who buy and OWN OUR POLITICAL PARTIES & LEADERS worldwide. The only answers is– REVOLT!! & STOP VOTING FOR THESE SAME CORRUPT POLITICAL CRIMINALS! – Obama, Sarkozy Merkel, Cameron are included in this secret financial cabal!

    June 19, 2011 at 7:12 am |
  21. regards from asia

    Dear Western World,

    Worse comes to worst, please call Beijing and ask for help.
    They have the money, you don't.

    Regards from Asia

    June 19, 2011 at 2:22 pm |
  22. Bret

    Alex – How long do you want your neighbours to put alms in your begging bowls? Unless you get your act together and cut expenditure and pay your taxes it will never happen and one day you may have to seel your country to teh Chinese or anyone who can fund your debt.

    June 19, 2011 at 4:05 pm |
  23. QuinClark

    I wonder how many of the people commenting here are Americans standing up and shouting rah,rah,rah, Greece this and Greece that while their own economy continues its accelerating tail-spin spiral into oblivion. Pot-Kettle and all that.

    June 20, 2011 at 9:54 am |
  24. Adi

    I think the financial system needs major restructuring, we are too dependent on bonds for investment. These are tough times and strong decisions needs to be made. It would be best for Greece to exit the Euro, there is no way it can starve its people and pay the insanely high interests on its loans. As for the other big European economies, change where and how you invest, and for the time being – stop being greedy!!!

    June 20, 2011 at 11:28 am |

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