What happens when Greece defaults?

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For months now, the European Union and the IMF have been grappling with Greece’s unmanageable debt and economic bankruptcy — to no avail. That failure has already precipitated panic runs on banks in Greece and Spain. It is looking more and more likely Greece will default and may even exit the Eurozone entirely.
But what does that mean?
We know what happens when individuals in the U.S. declare bankruptcy: debts are wiped clean, but at the cost of the individual’s inability to secure future loans and credit. Is that also what happens to entire countries that default?
Simply put, “default” means that a country tells its creditors it won’t be making any more payments on its debts.
Financial Times has an interactive graphic that attempts to answer that question by describing the likely consequences of a country defaulting. Here’s the flow-chart (click chart to enlarge):

You can also see a break-down of the flow-chart and listen to an accompanying audio by going on the FT website. Click here!
For readers who prefer an outline text approach instead of a flow-chart, here are the consequences of Greece defaulting on its debt:
1. New lending to govt stops → govt cannot pay its bills → economy stalls; govt employees lose their jobs; streets explode in protests and riots → eventually new loans are secured.
2. At the same time, the value of Greece’s govt bonds plummets → Greece’s banking system faces collapse → eventually new loans are secured to shore up the banks.
3. The fear and possibility is that Greece’s default will be contagious, resulting in the fall in value of the govt bonds of other Eurozone countries, as well as a collapse of non-Greek banks.
I’m now thoroughly confused. From the flow-chart, it appears that whether a country defaults or not, the eventual result is the same:

New Loans

But that’s exactly what the Eurozone (in reality, Germany) has been doing with Greece — extending new loans to shore up that country — which has only succeeded in “kicking the can” further down the road.
Can someone explain this better than I (or the FT flow-chart) can?

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0 responses to “What happens when Greece defaults?

  1. Yes, I can. The banks take a licking and the people of Greece keep on ticking. For a recent example, please see Iceland.

    • “Yes, I can”
      No, you can’t. Iceland is not Greece. Iceland was hard hit by a banking crisis, the economy collapsed, but the country did not default. Its govt nationalized the country’s three largest banks. Meanwhile, thousands of Icelanders have left the country, many to Norway.

  2. I can’t explain it any better. Whatever happens, it will not be good, IMO.

  3. I hear they left the EU a parting gift of a really big wooden horse

  4. Eowyn,
    What you are thinking of as “money” for loans to Greece is not really money. It is counterfeit.
    Is a counterfeit dollar a type of dollar? Is it “really” a dollar? Or is it not a dollar?
    A counterfeit dollar goes in which category:
    1. Things which are a dollar.
    2. Things which are not a dollar.
    Assuming you will say #2, the next question is why I say that banks are lending counterfeit. What makes me say that? To answer that, you have to know what a currency is. What property distinguishes something that is a form of currency from something that cannot be a form of currency?
    The answer is that a currency is issued by a government, while the banks (including central banks) are private corporations. Therefore, the banks cannot create a unit of currency. They can create a unit of trade and call it money if they want, but once they call it a “euro” or a “dollar”, etc., they are claiming to possess something that was created by government, even though it was not created by government. That is called “counterfeiting”.
    Long story short, the plan of the Europeans is to remove the ability of member states to finance deficits with newly created counterfeit. This would cause the states’ financial power to decrease, which means they would be forced to move to the American-style system in which they come begging to Brussels for grants and other kinds of funding. But all the decision-making power as to how and whether such money is released will be in the hands of Brussels, i.e. the European feds. So power will be massively more centralized. That is a step in the consolidation of power at a global level.
    Please don’t dismiss this out of hand. They are very serious, and they have their sights on other countries after Europe, for further consolidation of power and resources. They are working in concert with Obama, with Republicans, and even with religious institutions to try to make their plan happen. With respect to Iceland, the last I knew, the country had already applied for EU membership, against the will of the vast majority of its people. The rules of the EU have stated that there will no more “opting out” of the Euro by newly admitted members. So the present “happy” situation for Iceland is not intended to be permanent, merely to put people like us off our guard.

    • How do you know this to be true?
      By your authority – and what authority is that?
      By your credentials – and what credentials are those?
      By your knowledge, the basis of which is what, who?

      • The European claims are public record. In fact, I have read that the federalization of deficit spending has been the central issue in the recent French election, and also, recently, a very contentious issue in Germany, as some Euroskeptics accused Merkel of being in on such a plan.
        The statements I made about money are mostly just common sense.
        My claims about globalism are not easy for me to prove at this time. Some of my evidence comes from people who’ve said things to me that I believed because they were or appeared to be in a position to know. So I suppose that some of those claims would have to be considered by others to be opinion rather than statements of fact. I assume you would agree with me that “Obama” is a globalist stooge, and that this fact has already been more than adequately proven. Further I think it’s just common sense at this point that many moderate or liberal Republicans and many other leaders throughout society are going along with a globalist plan which could be seen as a form of international socialism. Otherwise, I don’t think we’d be in nearly the mess that we’re in.

  5. Here’s my tuppence worth. The new leader of the political party that is putting it’s foot down and saying “No” to the austerity measures that the Troika want to impose on the Greek people, is saying that the
    cuts etc. must be rolled back. Why? Because the Greek citizens are literally dying……………………they cannot survive on thin air. The rules that were imposed on Greece when they were accepted into the EU were totally ruinous for the most part for that country. First of all, their sovreignty was taken away, just like all EU countries, which meant that they couldn’t utter credit for themselves. Then, when the rules kicked in they lost most of their ability, that is the Greeks, to support their economy. They were forced to cut down most of their olive trees, so there went their olive oil business. They had to stop producing cotton, because supposedly it was competing unfairly with some cotton producing poor African country, and they were forced to reduce their production of dairy goods and import milk and suchline from outside their country at exorbitant prices. To crown it all, a huge portion of the money that was to be allocated to Greece from the loans from the banksters was earmarked for a gigantic Helio Park Solar Energy Plant for guess who………… other EU Countries, not Greece. The railroad that is badly needed to link Africa through Greece to Europe and the Middle East has been kyboshed because the trade that would ensue would have given too much economic freedom to those that the elite, the oligarchs, want to keep in utter poverty and despair……………so there’s no point caring about the oligarchs and their dismal monetary system. It is doomed, there is nothing that can save it, the debts are so humungous that it’s well over quadrillions now, and the gross world production couldn’t ever take it on, so
    kiss it Goodbye and Amen and Goodriddance.
    We need a global reinstatement of Glass Steagall which would outlaw the government guarantees of the gambling debts. We need to have sovreign nations cooperating with one another, with a fixed exchange rate and a Credit System which would back projects that would help to recover the planetary economic situation. We have a unique capability for our Congress to utter credit for infrastructure projects that are for the General Welfare, credit based on the return that will be generated by the completion of these projects, that will in some cases take two generations or so to be finished. Like the Hoover Dam, or the TVA Water Authority exercise, the benefits are countless and far exceed the amount that was originally invested, benefits that can be measured in more than just dollars. Most people come to look at money as something of value. Money in itself has no value, it is only worth what it represents. Credit, which is issued as money for decent projects, has a value that can be attached to it, because of the intention behind what it’s invested in. “Money” that is shovelled into the banksters coffers to bail out their gambling debts, has no value, their is no return on this investment, which has been proved over and over again during the past three years. The bailouts have crippled the world’s human productive economy not by mistake, but by satanic design, to ruthlessless destroy sovreign nations and reduce the world’s population by about ninety percent or more.
    Genocide on a massive scale, based on the false scientific assumption that everything is “running out”.
    What has run out is common sense. We are created in God’s image, and it is our responsibility to create ideas that will generate affordable clean energy, not solar power or windmill power, but nuclear power and power from Helium etc which will meet the increased requirements of an every increasing population of the planet. We need to cooperate with other sovreign nations to recover economically and make scientific progress. Anything less would not be in keeping of those created in the image of God. The demonic conspiracy of the monetarists the oligarchs the so called “elite” is a flop, and the sooner we stop being so taken in by it’s seductive greediness the better.
    The sooner the debts are handed back to their originators, the banksters, the better. The sooner Congress reinstates Glass Steagall, the better.
    HR 1489 is in the House. Halleluyah and a bag of chips.

  6. Richard T. Fowler

    Alice, the “quadrillions” of “debt” and the chaos it portends is not real in the sense of being unavoidable. Think of it as 2-dimensional theater scenery. Its only purpose is to give the appearance of an insurmountable problem, so that E.U. member states will give up the last vestiges of sovereignty that they have … including, particularly, the power to issue money and call it legal tender. I.e., the power to issue a currency. Contrary to what you have stated, Greece and Germany and the U.K. and everyone else in Europe still has that power. They just haven’t chosen to use it to finance their deficits in quite a long time. All the chaos that has already happened is about one thing: convince the people that there will be nothing but increasing pain until they “consent” to what the E.U. and globalists want for them. All the “quadrillions” can be set right and will be, as soon as they have the member states’ “consent” to this takeover that they want to do.
    I understand your sympathy for the Greek people and other victims, and I share it. But the bottom line is that as long as the great majority of the Greek people want the E.U., they have absolutely no way of avoiding the stated E.U. plan for them, and there is no rational reason to think that that plan won’t come to fruition. And that is nothing but bad for Greece, for Germany, and for the rest of Europe.
    All these other theories about what is happening are nothing but confusion being sown so as to misdirect people until they have what they want.


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