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Given that the whole Greece saga has played out for a few years now -- and that most speculation is that Greece will default at some point -- if they finally do default, will it be mostly symbolic?

That is, even right now, it would be an extremely high risk to buy Greek bonds. (Isn't it like 28% or something?) Banks that have lent to Greece in the past must already be privately preparing to take the hit for these bad debts on their books. Likewise, their investors must also be taking that into account in the stock price.

Would it make sense then, that even though Greece hasn't defaulted yet, sentiment towards Greece is that there will be a default in the future. So, it will be no shock to anyone if it does happen and it will not hit the world economy strongly, because it will mostly be confirming something that was already acknowledged years ago.

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It will affect Greeks as any bankruptcy affects the bankrupt. They already started reducing their welfare policies and government hand-outs. Default would mean that the government isn't able to meet its obligations. It's not only the external obligations, it's also the internal obligations - pensions, social security benefits, healthcare, public services, military (and the Greeks are in constant confrontation with the neighboring Turkey, with several armed conflicts throughout the years) - all that will get hit.

Yes, they will get affected much more, definitely.

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  • +1 good point regarding internal obligations. What are your views on the effect on the rest of the world? – Joe.E Jun 28 '11 at 4:27
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    @Joe For the rest of the world it is bad because it affects greatly the Euro zone. Basically it proves the point that British were trying to make when they refused to join in: France and Germany are carrying the dead weight of the PIGS (Portugal/Italy/Greece/Spain) social policies. That might weaken the European economy and discredit the Euro currency, which will in turn lead to its devaluation. Not pretty. – littleadv Jun 28 '11 at 5:37
  • quite true. Although I would argue that since everyone already expects Greece to default, much of the devaluation of the euro has already occurred to cater for it. An open market is a forward pricing mechanism. – Joe.E Jun 28 '11 at 6:05
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    @Joe - that's an opinion. I actually don't think that everyone expects Greece to default, especially not the Europeans. Otherwise they wouldn't stream so much money to Greece. If they think it's going to default - why give more money? Let them default and restructure, as any other bankruptcy. But the mere declaration of default will lead to devaluation, credit ratings dropping for the whole Euro zone, and of course instability because no-one knows what will be paid off, and what will be written off. Which, also, will trigger defaults and bankruptcies for the various lenders. Not pretty at all. – littleadv Jun 28 '11 at 9:29
  • @littleadv: actually PIGS are Portugal Ireland (not Italy) Greece and Spain. :) But now it's PIIGS which comes with also Italy. Italy can not be saved it's too much money for the other States. If Italy defaults, Euro will collapase. Moreover dozens of banks (even German ones) might collapse too because they are packed of Italian bonds. – Marco Demaio Sep 6 '11 at 10:24
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It's only symbolic if things continue as if nothing had happened. Once large segments of people start becoming poor, it ceases to be symbolic and starts becoming real.

Will a Greek default be felt in the US? Hard to say, but probably not. Will it be felt in Greece? You bet it will.

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  • i think the question i'm trying to ask is more, 'how would it affect greeks more than it does right now?' Few foreign companies are willing to invest in them now... they have strict austerity measures enforced on them, anyone that thinks greek banks will go bankrupt can pull their money out now, so when the thing that is already predicted to happen, happen, what will change? – Joe.E Jun 27 '11 at 23:23
  • I think the problem is that the proposed austerity measures are not exactly going over well with the populace, who seems at the level sometimes of near rebellion over any cuts to what they consider entitlements. If would not I think be nearly so bad if the populace as a whole would wake up and smell the coffee, but so far that doesn't seem to be happening, and it only prolongs the agony and deepens the hole they are in. – Chuck van der Linden Jun 28 '11 at 22:35

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