We are in the penultimate act of a Greek tragi-comedy: one where the action is accelerating toward an end that we sense tragic.
So far, the only question that arose when it was an investor was in the range of information asymmetries: the Greeks were they serious about their program to reduce government expenditure? Concealing the reality of the budget deficit (including the revelation is the remote origin of the current crisis of confidence) was continuing it? And, more importantly, what kind would be with Europe?
crisis was just manageable. It was enough that the Germans say they want to help the Greeks, that the IMF should exercise interventionism that he knows, tell the truth about the budget deficit and ensure the involvement of the Greek government in reducing costs, and these asymmetries could be reduced. A recent study even shows that it was the realm of possibility to achieve the necessary fiscal adjustment.
But failure to act, owing mostly to say that Germany finally what everyone expected of her, we entered a different reality: in a post-Keynesian radical uncertainty, where it This addition to increasing the transparency of information, because there are more advance information, objectively, that is still to reveal. We're in a situation specular, where the look that each investor is on the eyes of other investors is the creator of a chaotic dynamics radically unpredictable and threatens to take the form of a self-fulfilling crisis of considerable magnitude.
From this point of view, the situation is similar to the situation we experienced following the fall of Lehman Brother , where liquidity has dried up the interbank market, threatening to bankrupt a many banks. Indeed, like a bank, which is always short and always need cash in the short term, all states have a monthly need to issue debt, although debt remains stable. States, in effect, make all of the "cavalry" ("roll over ") On their debt. Permanently bonds maturing past, and the state must pay for them to sell new bonds (unless it is engaged in a drastic reduction of its debt, which no state can do if a recession like ours). It can do this because it is eternal, and therefore every investor knows that this horse will not stop, it will be paid one day, albeit with a new debt, underwritten by a new investor.
The situation of States is, in fact, financially fragile, and so much more than their shorter maturity debt. If investors continue to believe in the permanence of this game of horse, a State shall immediately bankrupt.
For Greece, the situation is worse: the Greek State not only needs new bonds to pay past obligations mature, but more new bonds to finance a huge deficit, given the available resources since over 10% of the country's economic output. In other words, its debt is growing so fast that investors are wondering if it will be solvent in the future.
However the issue of solvency is a Greek question scale several years (4 / 5 years), the time drift of debt renders really insolvent. The questions arose investors so far have that time horizon: they wondered if this budget would be monitored drift in future years and if the Greek state would be solvent term.
But this is no longer the case: investors are now wondering if the Greek state is still liquid, ie whether there are any other investors to maintain the game of horse Debt the Greek State. For if investors no longer accept to lend money to the Greek State be it until next month, it went bankrupt, even if it is in fact leaving him time, he might actually be solvent in the medium term.
other words, the only question being asked by investors is what will make other investors, in a game of anticipation and specular cross. This game is kind of self-fulfilling: it is enough that investors collectively take action in fear of other investors that this fear is realized, and that the Greek state will go bankrupt. And nothing, as change the note of a rating agency, more performative than ever, is sufficient to carry the cross training of these expectations.
Banks are subject to this kind of problem is what is called a run , a situation that occurs when depositors fear they create bankruptcy by withdrawing their funds together to the bank. That is why we have created central banks, which guarantee to depositors that they will be paid no matter what. This warranty remains cheap on the belief that the financial system is built. When the Fed did not provide this role in respect of Lehman Brothers in October 2008, the belief has ceased to exist, and the financial system with it.
What we asked Germany (France having agreed to do it) was nothing more than that: to play the role of Central Bank, to perpetuate the belief in the ability of the State Greek remain liquid, while forcing him to become creditworthy in the medium term.
She did not. And no one knows how far out of the belief can go: there is really no limit to self-fulfilling expectations in situations of radical uncertainty.
And therein lies the paradox may discover Germany: it does not cost much to perpetuate the belief in the sustainability of the system Financial when it is subject to some doubt. But if we delay, the cost can become infinite. A few billion in loans to Greece to market rates enjoyed by Germany would have been enough, there is one and half months. It is now increasingly likely that it is all Greek debt than other countries in the eurozone will have to finance in the years to come (a 100aines billions), no more daring investors still do or only at exorbitant rates. And if confidence grows, and spreads to other states in the eurozone, the cost will simply infinançable by the states most financially solids. Yet we will all pay, the price of an explosion of public debt obligations and the euro area. Even Germany.
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