With talks between the EU and Greece reaching the boiling point, the former White House Budget Director warned that the Greek crisis is now a threat to the entire global financial system.
Former White House Budget Director, David Stockman: “The Greeks owe something like $350 billion. $60 billion of it is owned by Greek banks. The rest of it is (owned by) the EU — $210 billion — and another $30 or $40 billion by the IMF.
So the issue in the short-run is the taxpayers in all the countries of the EU…because the debt has been transferred from the banking system — that’s what all these bailouts were about — to the taxpayers of the EU.
Germans Increasingly Desperate
That’s why there is so much desperation and so much tension in these negotiations. The Germans could afford to take the $47 billion hit that is guaranteed by Germany. But the Germans are afraid that if losses are triggered, in other words Greece is permitted to default, then the next two countries in line are France and Italy.
Anti-EU Governments Will Unravel The EU
Their (French and Italian) governments simply will not survive a capital call. They will be forced into an election — I call it a run on the parliaments — and they will get radical, populist, anti-EU governments and the whole thing will come unraveled.
Germany Walked Itself Into A Giant Trap
So this rigidity and stubbornness of the Germans is understandable because they walked themselves into a giant trap. They should have allowed the write-offs to occur and for Greece to go bankrupt and leave the EU two or three years ago. They should have forced their banks to take the losses — it wouldn’t have put Deutsche Bank under for crying out loud.
Greek Drama And The Ticking Time-Bomb
But now by socializing (roughly) $300 billion worth of Greek obligations, they have moved the whole issue to the political arena. And that’s the ticking time-bomb that is an existential threat to the continuance of the EU.
Now think about the global financial system and how fragile it is — the European economic union and currency experiment — and right in the center of it is a ticking time-bomb that’s about ready to blow. I think if people needed any warning that there is massive danger ahead, just think about what’s happening hour-by-hour, day-by-day in this Greek drama in Europe.”
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