Your Big Fat Greek Meltdown!

Heard about the unfolding Big Fat Greek Meltdown yet? If not, may I suggest you read on because if it goes the way some are suggesting it could kickstart the second wave of the GFC. Yes that’s right the second wave.

The first started when the subprime collapse put a bunch of private investment banks like Lehman Brothers up against the wall. The second I fear may have already started with the possible bankruptcy of Greece. So what the hell happened? Well basically the Greek government has wildly over-stretched its finances and may not be able to meets its debts and unless it gets a grip on its deficit and massive foreign debt, it risks what’s called sovereign debt default. Put simply, this is when a country can’t meet its debts. To quote the inimitable Guy Rundle for crikey.com.au “the Greek accounts are Swiss cheese”. And I reckon Greece is just the start – a headline to a much deeper problem that will see a whole bunch of European nations struggling to pay their debts with Spain, Portugal and Italy next.

So why does the drama of the drachma need to be an issue for us Aussies? Well this may be a Greek tragedy now but, because of the interconnectedness of Europe, it could take the Eurozone down with it with obvious impacts on world trade etc. But that’s just the start because when we finally work out how much the global financial system is exposed to the Greek meltdown it’ll start getting really funky. In fact if the tentacles of this drama reach far into the global banking system we’ll be back up Ouzo creek without a souvlaki before you can say fetta anyone? I.e act two in the GFC franchise.

Awww but don’t worry, it’s not all bad news for Australia. As economist Mohamed El-Erian told ABC’s Inside Business, “these sovereign debt problems are not going to go away any time soon but Australia is lucky because it’s exposed to the accelerated shift of growth and wealth towards Asia”.

Nice one … errrr … I guess.

And in other news… well actually not other news, just more bad stuff from the same grim tale. Greece has been using derivatives which allowed them to delay payments and hide its budget deficit problems. This dodgy accounting kept chunks of Greece’s debt off the books. The political question is did Greece do this to hide its problems, complying with the membership criteria of Eurozone? Oh and the postscript is that it was done with the assistance of Goldman Sachs.