September 15th, 2011
06:22 PM GMT
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London (CNN) - Greece is almost certain to default on its debts, but the type of default – and its impact on the markets, Europe and the world – is yet to play out.

A default can come in three different forms:

A “selective default”. Under the terms of the second bail-out, some creditors can roll over their debt and take a “hair-cut”, or losses on the money they are owed. This is done to protect against the possibility of greater losses in the future. It is limited, controlled and understood. Crucially, it is expected.

The greater fear is that Greece defaults on a much greater scale. An “orderly default” would be one that is planned for, so creditors – and the markets - are prepared and have a plan to deal with losses in the value of their investments. While markets will be volatile, there will be soothing statements from eurozone leaders and it will be controlled.

The worst case scenario is that Greece defaults outright and without warning. This is what people are referring to as a "disorderly default,” and that is the big fear. This would be hugely significant because it will almost certainly lead to contagion. It will not necessarily lead to Greece being kicked out of the euro, nor the collapse thereof. It will however pose fundamental questions about the foundations of the euro project. Market reaction could be as bad as when Lehman Brothers collapsed in 2008.

This all comes against a backdrop of serious financial problems in other major eurozone economies – particularly Italy, which is one country regarded as too big to bail out.

Greece was given a second bailout on July 21. The centrepiece of that agreement was the expansion of the bailout fund – known as the European Financial Stability Facility, or EFSF.

All the countries in the euro must agree on this change - and that is where the difficulty currently lies. Some, like Finland, want collateral in return for participating. Others, like some German politicians, are philosophically opposed. Germany’s vote, which is key, comes on September 29.

Monitoring all this is the troika – European Central Bank, European Union and International Monetary Fund – delegation to Greece. It must approve the measures Greece has taken in terms of cutting its deficit. The delegation abruptly cut short their first monitor visit and still haven't returned despite Greek Prime Minister George Papandreou passing the necessary measures.

A Eurogroup and EcoFin meeting starts in Poland tomorrow. In a surprise move, U.S. Treasury Secretary Tim Geithner is attending. Action, rather than talk, can be expected at this meeting.

The troika return to Greece on September 19. This return has been delayed multiple times. Their report is due at the end of September, although no date has been set.

Another date for the diary is the International Monetary Fund and World Bank meeting in Washington DC on September 23 and 24, followed by the G20 Finance Ministers meeting in Paris on October 15. The detail of the discussions could well be dictated by the type of default which Greece ends up tripping on.

soundoff (34 Responses)
  1. Maria

    You know the EU is in bad shape when they need OUR advice on how to fix their economy. Don't they have any economists there? It always seems like the political leaders or non-elected bureaucrats are designing the plans regarding Greece. I can't imagine that any economist could have hatched such terrible plans. Perhaps, however, I am just being naive. If their endgame is to lower wages and standard of living and drive out small businesses so that large corporations will come in and find cheap labor, they are on their way to accomplishing this.

    September 15, 2011 at 11:43 pm |
  2. HZ

    so EU bailed Greece TWICE and it still defaults....
    then why those idiots in the name of "EU politicians" even bail Greece out in the first place?

    September 16, 2011 at 12:49 am |
  3. tj den herder

    first of all this all started 2008 caused by the us banks. and look first on ur us economics . is it good there. healthcare a big laugh,and u think obama can change any there i think it will not. coss us is already some time in economic depth, so before u talk about europe first look at ur own

    September 16, 2011 at 5:54 am |
  4. Paul Johnston, PhD Economics


    September 16, 2011 at 6:00 am |
  5. Paul Johnston, PhD Economics

    This is an incredible farce perpetrated by the EU Leaders to steal Greece's assets, destroy its People and its sovereignty.

    September 16, 2011 at 6:06 am |
  6. Paul Johnston, PhD Economics

    The Politicians in Greece are the MOST CORRUPT in the EU. For 30 years they made a fortune by exploiting the state's wealth, thru bribery and overcharging for every project with help from their rich financial supporters.
    The problem is that the worldwide media do not report this aspect. The EU(Commission)-IMF-ECB, known as Troika, has made it unbearable for us to live anymore.

    I make a plea to CNN and other media to start telling the truth!

    September 16, 2011 at 6:13 am |
  7. Matt

    I have Greek freinds, and its not as simple as purely corrupt politicians.
    The problems are really two fold...

    Firstly since joining the EU the politicians and the public have got used to living easy on EU credit.
    Thats where you get massive civil 'employment, 50 year old retirement on pensions far more generous than the country could possibly ever afford; and its why you have pensions and public service jobs being cut at a severe rate now (and people up in arms and protesting).

    The other problem is that historically (going right back to 400 years of Turkish domination!) is that taxation is seen as theift by the Government; and its business as usual for people to lie and bribe to get their tax bill reduced.
    (Many People arent also happy about paying taxation for the first time on their expensive asssets and homes..!).
    This goes on at all levels in Greek society.

    Clearly the two combined are unworkable, and changing both is a herculean task, and thats leaving aside totally the massive political corruption of course..!

    Yes, clearly Greece should never have been allowed to join the EU in its previous state; but simply throwing more EU loans at the problem isnt going to make it better either; and the Germans are starting to realise that for them; the EU is becoming a bottemless pit...and clearly that cant go on forever either...
    (Im part Jewish, and I dont see why modern Germans need to have some sort of 'European guilt' for the ancestors evil deeds...and pay for the whole EU project forever..! lol)

    September 16, 2011 at 8:35 am |
  8. douglasjames

    I was married to a Greek for many years and I will tell you living there and dealing with not only the govt. but many of the people it is no wonder they are in the mess. It also goes down to individual responsibility. I love Greece, but underneath all that beauty lies the beast.

    September 16, 2011 at 9:08 am |
  9. Harry

    This is but the start. Prepare for the biggest depression the world has ever seen. What has been will be again!.

    September 16, 2011 at 11:10 am |
  10. lorne

    greece partied on low retirement ages , 2 many civic workers, lets face its golden age was over 2000 yrs ago.
    when achilles made his last stand. no taxes, the problem is the euro-zone. britain was smart to stay away from that
    gong show. if greece is booted it goes back to the drachma. fold the whole euro zone. why should have working
    germans pay for slackers in spain, italy, portugal

    September 16, 2011 at 1:52 pm |
  11. sbernardi

    It's true that if Greece allows citizens to retire at 50 and get benefits, like Italy has done and is still doing to some extent, including full health benefits, no wonder Greece is in default. I live in Italy and there are able body folks who can contribute to the economy sitting around, walking with their friends from high school, or following a hobby like cycling at 50! Imagine this in the US? At least the US has a respectable retirement age. Apart from that, if all the business that is under the table in Italy (there's a lot, from house purchases to hair cuts) went above the table, then maybe Italy could pay it's debts. I live here and I have seen extraordinary efforts made at all levels to avoid taxes. It is shocking and pervasive!!!!! If Berlusconi had B....s, which he does but uses like a pedophile, he would make an effort to save his country, one of the most beautiful and historically important in the world, instead of continuing to pretend he is a prime minister!

    September 16, 2011 at 2:40 pm |
  12. Steve Thompson

    By its own admission, the EU economy is expected to grow very modestly over the second half of this year as shown here:

    This factor will make it increasingly difficult for the PIIGS Member States to lower their debt-to-GDP ratios and could well signal the end of the Eurozone partnership of the unequals.

    September 16, 2011 at 3:04 pm |
  13. Pavel

    I just cannot imagine that Greece would default and remain the member of the monetary union. The expenditures of Greek government will not decrease very much after the default but the tax revenues will plummet. People in Greece will try to save money for rainy days and not to pay taxes to the corrupt and bankrupt government. Who would cover the difference? The EU again? The private investors (just a joke)? Such a default (orderly or disorderly) would not solve anything because Greece would be deep in debt again just a couple of years later.

    September 16, 2011 at 8:25 pm |
  14. idi01

    I work with Greek companies and visit Greece several times a year. They are great and hospitable people, but in Feb. 2010 when I first heard what their total debt was, I said immediately that Greece was bankrupt. The work culture and more importantly the tax collection culture needs to change (such a big change will take minimum 10 years) for them to be able to pay back all of their debts. Everyday that they delay getting that "haircut" means more misery for everyone, especially the Greek people. The financial markets have already factored a default into their calculations, why not go ahead and legitimize it. France and Germany are waiting for the "right time" to declare the "haircut", but the right time was last year, 6months ago, 1 week ago or yesterday and the worst time will be tomorrow, or even worse next week, or even much worse next month...

    September 16, 2011 at 9:30 pm |
  15. raj

    Retirement at 50 is a good concept – give the young unemployed as chance to join the labour force and generate tax income instead of claiming benefits.

    September 16, 2011 at 10:04 pm |
  16. rightospeak

    My personal advise to Greeks ( I love them ) : default outright and without warning, jail the crooked politicians and banksters and get out of the kolkhoz . Then ,rebuild your economy back to former structure and NOT to biurocratic plans from Brussels. Start being Greece again.

    September 17, 2011 at 12:19 am |
  17. poor man

    I totally with rightospeak. that's sensible enough and full of common sense and logic.

    September 17, 2011 at 1:04 am |
  18. poor man

    totally AGREE i mean...

    September 17, 2011 at 1:05 am |
  19. yl

    it is supposed to be a third world country, borrowed money to be looked a little bit like developped country. Fix? go back to where it should be

    September 17, 2011 at 6:57 am |
  20. coachera

    The leadership and the people in Greece and those who are trying to help them, must understand that some of their biggest pain, problems and obstacles are results of their national values and culture.

    September 17, 2011 at 4:20 pm |
  21. Dexter

    Canadian consumers running out of credit ...

    September 19, 2011 at 1:53 pm |
  22. Bakker

    The whole world is broke....everybody is just in denial...our leaders are kicking the can to the moon, but it is inevitable...major depression is coming. 2012 was the end of the world the Mayas say, well it will be so if all economies crash and burn, anarchy will come and thanks to our leaders.

    September 19, 2011 at 9:10 pm |
  23. Paul Johnston, PhD Economics


    September 20, 2011 at 9:37 am |
  24. Jon Dough

    Let them default – now. The world will not end. Stop pouring "good?" money after bad. Delays are costing
    the world economies hundreds of billions (uncertainty).

    September 26, 2011 at 12:52 pm |
  25. OIS

    Apparently, a lot of people here are talking without knowing. Greece is not taking bailouts, instead it's borrowing money – no European nation is giving away money for free to Athens. They are lending money with an interest of 4.73% from each one of Greece's European "partners". Read the facts (this goes for the well respected journalists analyzing the situation in the Eurozone)

    October 4, 2011 at 4:45 pm |
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