The financial doom will be when every insolvent nation demands the same bailouts that Greece is getting, even though they are too big to bail.
“Tyler Durden” at Zero Hedge asks, “Did The IMF Just Open Pandora’s Box?”
By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.
The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).
And yet, today, in a stunning display of the schism within the Troika, it was the IMF itself which explicitly stated that Greece is no longer viable unless there is both additional funding provided to the country, which can only happen if there is another massive debt haircut.
The lunatics really are running the asylum—or at least the IMF and European Central Bank. They’re smart enough to recognize that one false step, or unfortunate “Black Swan” event, will disconnect the entire daisy chain of economic insanity in one big, cascading flood of fiat dominoes.
Every “too-big-to-fail” institution is on the edge of an almost infinite abyss, tied together as banking brethren by innumerable CDS handcuffs (enough to make “Christian Gray” drool) and the first to topple will drag all the others with it.
Adding to the fun, the IMF has—wittingly or unwittingly—opened the door wide for more nations beyond Greece to come, hat in hand, requesting debt-relief.
…ignoring Greece for a minute, what the IMF’s ‘debt sustainability analysis’ has just done is open the door for every single other comparably insolvent peripheral European nation to knock on Christine Lagarde’s door and politely ask: “Mme Lagarde, if Greece is unsustainable, then why aren’t we?”
Because… the debt situations of all the other peripheral European nations [specifically Portugal, Italy, Ireland, and Spain] is just as ‘unsustainable.”
More popcorn, please.