As far as MIT economist Simon Johnson is concerned, Greece is already effectively in default, whatever nice words are used to paper over the crisis. It’s going to be messy, and the Eurozone itself is not out of the woods. Greece may not be able to survive catastrophe without European Central Bank support, so simply kicking the Greeks out isn’t an option. But the steps Greece must take will hurt its citizens and help the banksters that improvidently loaned it money.
Does it matter here? Last time I looked, Greece was No. 53 among Washington state’s export destinations. This is an Asia-facing state and, as Neville Chamberlain would put it, why should we worry about a quarrel in a faraway country between people of whom we know nothing?
Unfortunately, Greece is the anchor weighing down the European Union and that does matter. Let’s count the ways:
1) A Eurozone breakup would make the fall of 2008 look like a run on a small-town S&L (I exaggerate the comparison perhaps, but it would be very bad); The “counterparty” relationships between (perhaps) insolvent banks and American institutions is widespread, making any banking collapse there go quickly viral across the pond; 3) Dithering by Germany and France on finding a comprehensive solution to restructure sovereign debt makes it more likely that problems in the large economies of Italy and Spain will worsen; 4) Europe is large enough to pull the world back into recession, especially as growth is already slowing worldwide.
The next two weeks may be pivotal. As President Bush said during the banking panic of 2008, “This sucker could go down.”