Why It’s So Hard to Predict the Impact of a Greek Default

Greece owes more than €240 billion and may default – and may even withdraw from the European Union – if creditors including the EU, especially Germany, and the International Monetary Fund do not provide another bailout. Greek debt is about a third to half that of the US subprime mortgage debt before the global debt crisis struck in 2007. Consequences for the global economy are unknown, but analysts anticipate cross-border financial impacts with general declines for the value of the euro, global stock markets and high-risk investments. Much depends on the level of panic and contagion, analysts conclude. There could be a two-month period of uncertainty as exposure to Greek debt and other risks are identified. Pricing of bonds for neighboring states, including Portugal and Spain, already reflect worries about Greek default. The economy is relatively small, not ranked among the EU’s 15 largest. Some analysts suggest that the EU has isolated the Greek problem to prevent runs on banks in other countries. – YaleGlobal