Canaries in the Euro-Coalmine
Perhaps not since Lehman Bros went pear-shaped in 2008 at the height of the Global Financial Crisis (GFC) has the hoary old metaphor of the canary in the coalmine been more apt than with the current Greek liquidity crunch. With the 'bird' in question still standing only because it is nailed to the perch, at least one commentator Bill Bonner has framed his assessment accordingly. Amid Greek banks limiting withdrawals due to capital controls and others closing for fear of running out of cash, along with a pending referendum which could go either way, the crisis is about to reach a denouement of sorts.
After noting the 'sense of panic and impending doom' becoming intensified over the weekend as Chinese authorities in the wake of developments in the Eurozone took action to halt a market downturn there, Bonner -- author of The New Empire of Debt, and Mobs, Messiahs and Markets -- observed,
'In the last two weeks, the Shanghai Composite Index has lost 20% of its value, [the] equivalent of the Dow losing 3,600 points. It's the kind of thing that makes investors nervous. Or desperate. If that happens in the U.S. -- which it surely will -- you can bet your bippy that the feds will intervene. The Chinese are doing the same. They've just cut the central bank lending rate to the lowest level ever. Will that do the trick?'
In the aftermath of the Greek default, with this in mind it might be instructive to look at the broader landscape, which involves amongst other things revisiting the event that exacerbated the crisis along with identifying the real causes and the real culprits. If we are to believe certain Eurocrats, EU leaders and numerous pundits -- along with many in the mainstream media (MSM), on whom the former rely to tell us what they want us to hear -- the present situation is of Greece's own making. Yet as with so much of what the MSM tells us about the pressing economic and geo-political issues of our time, increasingly we need to perform our own reality checks to garner any semblance of veracity about them.
As for the received wisdom the crisis was self-inflicted, apart from being a not entirely accurate reflection of reality, absent a more historically nuanced insight into how Greece got into such an indebted state -- to say little of other EU countries with massive debt and liquidity issues such as Italy, Spain and Portugal -- this crisis is unlikely to be resolved anytime soon in anyone's favour, with the possible exception of the main private creditors. And it should go without saying that until and unless the conditions that set Greece on the path to bankruptcy are recognised and addressed, any resolution however it might be defined much less effected is even less likely to be a self-sustaining, ongoing one. At best we can expect that any progress will be of the 'one step forward, two steps back' variety.
That said, it would be difficult to overstate the dire implications for the European Union experiment, to say nothing of those for the global economy, if the du jour economic 'sick-man' of Europe falls off the aforementioned perch. Short of some sort of debt forgiveness deal being negotiated, an outcome that no-one at this stage expects, or Greece accessing loans with more favourable terms from other sources external to the IMF and the ECB (Russia for example), the EU experiment looks increasingly precarious with every day. Even if Russia comes to the rescue, it is difficult to imagine from a geopolitical perspective the U.S. and NATO states being happy with that solution, for what should be patently obvious reasons. And if anyone had any illusions about the experiment's 'work-in-progress' status even after all this time, then a sustained Greek default post-referendum followed by the seemingly inevitable "Grexit", surely will dispel them for all but the most ardent Europhiles.
In short, the economic Tower of Babel that is the Eurozone could well endure a fate not dissimilar to its Biblical namesake. By all accounts there is no Plan B for Greece's departure from the Eurozone, with expectations in most quarters there'll be an economic 'domino effect' as a consequence. Which of course makes one wonder if the West in general and the U.S. in particular will bring to bear the same determination to prevent this scenario happening that they did when confronted with a domino effect of a different kind in the halcyon daze (sic) of the Cold War.
And as we will see, this isn't just all about Greece, or for that matter, the Eurozone. With cracks appearing along several global financial fault lines, there may well be bigger fish to fry in the grand scheme of things.