Great graphic from the FT:

Click for interactive chart:

Source: FT.com

Category: Bailouts, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “What Happens When A Country Defaults”

  1. MikeDonnelly says:

    I don’t recall Iceland following this path, it should serve as a close approximation.

  2. DarthBeta says:

    Why is the assumption no one would lend to Greece after they defaulted?
    Why is there the assumption they couldnt pay their bills?
    This seems biased towards not letting Greece default than an obective look at what might happen if they did.

  3. techy says:

    I dont think these are the only options.

    Greece can default with help of private investors who will lease assets from them for say monthly payment in return.

    Its hard to lend money to an entity completely disorganized but you can always have a rental agreement with them.

    Of course they will have to let go all the current social benefits and start fresh with huge discounts. get employment programs to export stuff with labor costs in pennies. etc..

  4. Crap. 3,800 currencies have gone to shit. They issue a new one. Usually takes 1-3 times before it sticks. In the case of Greece they’re fucked totally up the ass because the world will set the value of the new drachma. The usual bring us 100,000 old drachma’s for 1 new drachma won’t fly.

  5. Winston Munn says:

    I hear J.P. Morgan likes to gamble.

  6. newulm55 says:

    Looks like a chart drawn up by the bankers and euro protectors… to instill FEAR!!!!

    See Iceland, even Paul Krugman has remarked how well they are doing because of default!

  7. dead hobo says:

    I’m waiting to see if Greek debt becomes worthless if Greece leaves the euro.

    The chart above points out that banks take a hit if the debt becomes worthless. This has been well known to all for a long time. What appears to be aggressively ignored is that the ECB is also a bank. It has capital and makes a profit or loss just like any commercial bank. While it has the power to print money, it can’t capitalize itself. It must at least use the other EU countries as straw men and loan them newly printed money in return for collateral of value.

    The ECB has capital and reserves of approximately 85 billion euros. It has direct and indirect exposure to Greek debt well in excess of this. Thus, Greek debt becoming worthless will cause all of the ECB capital and reserves to evaporate and likely go into deficit. The ECB will need to be recapitalized and it CAN’T print itself out with direct deposits to its own capital account on the ECB books.

    This will be the most interesting part of the Greek financial collapse. It’s also quite fascinating how many financial pros and pundits lack even basic knowledge of an accounting 101 grasp of the balance sheet equation (Assets = Liabilities + Capital) and basic bank operations. Most act as if central banks are magical unicorns that shit gold logs.

  8. NMR says:

    Seems a reasonable statement of the likely sequence of events in the event of Grexit. They are going to be in a world of hurt. And the comparisons with Iceland are not well founded. Iceland was a hedge fund with 350,000 employees and fishing subsid. And lending to Greece will effectively dry up because of the premium demanded.

  9. dan10400 says:

    Why is the “Eurozone banks take a hit” bubble so small?

  10. dsawy says:

    This chart utterly ignores the internal political consequences – which will likely be a return to the 50′s/60′s era of Greece, when everything seemed to be run by the state, private enterprise took a back seat and the economy was a fraction of what it is today.

    As it is now, the Greek government cannot pay their bills without more infusions of cash from outside. They’re already failing to pay for medical supplies and drugs:

    http://greece.greekreporter.com/2012/05/22/pharmacists-warn-of-drug-shortage-and-strike/

    Another thing this graphic fails to notice is that Greece’s government has effectively failed. They have not formed a new government since the elections – and as a result, they have to call another election. People are reacting to attempts to raise government revenue by not paying their electric (and other) bills.

    Greece is quickly becoming a failed state, well before they declare default on their debts.

  11. jsp9999 says:

    Yeah, like moving into a new currency is like a jump state to serenity. There will be one line forgotten in that bubble of new currency; deep depression for decades.

  12. blackjaquekerouac says:

    to my knowledge no country ever has gone bankrupt. even Russia repaid its debts after the Bolshevik Revolution.

  13. formerlawyer says:

    @blackjaquekerouac Says:

    Wikipaedia (yes I know but it will work for government work) disagrees:

    http://en.wikipedia.org/wiki/Sovereign_default#Examples_of_sovereign_default