From CNBC – Europe’s Debt Crisis Won’t End Until Greece Defaults:
Allowing deeply indebted European countries the chance to restructure their obligations seems to be the most direct approach to resolving the problem, yet has been met with resistance that likely will only prolong the crisis.
The reason: What once was thought to be a minor problem involving only some smaller peripheral nations in the European Union is now increasingly being recognized as a global train wreck about to happen.
“The problem in Europe is that the banking and national interests have been uncommonly incestuous over the years with banks in France owning the debts of companies in Spain and Spanish sovereign debt, while the banks in Spain own the debts of French companies and the French sovereign,” Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. “In that environment, as one area of the economy contracts, others do also in a rush to liquidity and to the detriment of all.”
The eurozone debt dilemma has been one of the root causes of market turmoil over the past two months, even though the problems have been known since at least early 2010.
Until recently, the popular narrative was that the debt burdens in smaller nations like Greece and Italy would be contained and not cause widespread contagion. That belief, though, has waned amid revelations that some European Union banks are having trouble raising capital. The ability to raise money would be critical in the event of defaults, as banks holding the restructured debt would have to recapitalize.
Suddenly, a problem that looked small and manageable now has much broader implications…
The overhang of the eurozone crisis has fueled anticipation that economic problems are accelerating—and is drawing calls from numerous quarters that the EU stop denying the severity of the debt problem and start employing solutions.
The idea is that once Greece defaults the country, and others in the same boat, will be able to restructure their debts in an affordable manner. While the cascading defaults will cause pain, they also will pave a way back to stability for the indebted countries.