Could Greece Be The Trigger Of The Next Financial Crisis?

REUTERS/Alkis Konstantinidis

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Robert Donachie Capitol Hill and Health Care Reporter

Greece is in battle over its next debt payment, and this time, if the conflict is not resolved, it could lead to the unraveling of the Euro.

Unless Greece is able to raise, or borrow, nearly $7.39 billion, it will default on its debt payments due in July. If Greece defaults, it could catalyze a domino effect in the Eurozone, causing sovereign debt crises to spread throughout Europe. A widespread fear is that defaults in Greece will trigger a debt crisis in Italy — one of the largest bond markets in the world.

“If you get a Greek default, you also have very serious problems in Italy. We could be talking about the Euro coming unstuck,” Resident Fellow at the American Enterprise Institute Desmond Lachman, tells The Daily Caller News Foundation. “If the Euro does come unstuck, that is going to be a huge crisis globally. As soon as countries leave the Euro, they will almost certainly default on their debt.”

Of Italy’s “$2.5 trillion in sovereign bonds,” at least $1 trillion “is held by foreign banks,” Lachman explains. Essentially, an Italian debt default would trigger a widespread financial crisis in Europe. If that happens, “you will know all about that in the U.S. because the global financial system will be in deep trouble,” Desmond warns.

Unlike other previous debt crises in the country, which were resolved by an agreement with the IMF and Germany, the present Greek contagion is shaping up to be a stalemate between the three parties.

Speaking on behalf of the IMF Feb. 9, Communications Director Gerry Rice laid out the conditions the IMF would need guaranteed to participate in another Greece bailout. The IMF thinks that there is a little wiggle room for Germany to push for any further budget-tightening measures, saying that “the IMF is not asking for anymore austerity in Greece.” The IMF is calling for structural reforms to the Greek economy, and is asking for European partners to provide Greece with excess liquidity, so that it can make necessary budget cuts.

With the IMF’s waning credibility and the emergence of President Donald Trump, the IMF faces obstacles getting the two nations to come to an agreement. For their part, Greece and Germany have some qualms with the IMF’s demands.

While German officials made it clear Monday they remain committed to keeping the Eurozone intact, the government does have some concerns regarding another Greek bailout.

German apprehensions revolve around the basic suspicion that Greece is unable to meet the agreed upon target of a “3.5 percent primary surplus.” Furthermore, the impending German elections make it politically unfeasible for German leadership to ask taxpayers to underwrite another Greek bailout.

Greece stresses that it cannot make any further budget adjustments because of an already tumultuous political climate in the nation. Moreover, Greek leadership thinks the IMF is being unfair in its demands, and is not reevaluating its policies regarding Greece over time.

“The problem is that the IMF is coming with very pessimistic growth and fiscal forecasts as regards Greece. Moreover, it is not correcting those forecasts based on facts, based on the actual outcomes,” European Commission Vice President Valdis Dombrovskis told reporters.

Citing uncertainty, Lachman thinks any decision is going to “come down to the wire.” It is more likely “we see an early Greek election in July, and it gets replaced with a new government that is more pliable,” Lachman tells TheDCNF.

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