October 24, 2011 Dylan Ratigan

Yahoo’s! Daniel Gross on Greek Default: “It’s Pretty Much Already Happened”

Daniel Gross, editor and columnist at Yahoo! Finance and the Megapanel debate whether France and Germany can agree to fund a Greek bailout.  You can check out Daniel on Twitter, as well as at his Yahoo! Finance blog Contrary Indicator.  

Following days of violent and fiery protests, it’s shaping up to be yet another crucial week for the Eurozone debt crisis. The talk now is about more than doubling the size of the bailout for the banks — not just the European banks, but also the Western banks have extended a wide variety of credit to a lot of Western Europe.

There’s a lot of additional speculation on top of that as to who will pay for what, and instead of $600 billion, Greece now says they need $1.3 trillion. Any bailout is almost certain to be coupled with austerity matters, and could be coupled with tax hikes and debt restructuring.  As one Greek trader told a Business Insider, “the painful problem of austerity hasn’t even hit yet. Nobody in Europe has any idea what’s going on, and social strife, if it seems bad now, will become a daily issue.”

When looking at the Greek debt crisis, Daniel says making a comparison to 2008 in the U.S. is worthwhile. “It’s kind of useful to compare what we did here in ’08 and ’09. There’s a lot of criticism of how things went down. Basically, the Federal Reserve came in and said, “we will guarantee everything in sight, stop running from the banks, the government said, we’ll do some stimulus, and both said to the private sector, we’ll keep rates low, but you’ve got to get your house in order. Take some losses, fire people, restructure.”

“But a lot of that is now behind us,” says Daniel. “The TARP money came back, banks are back to doing their thing — in Europe, someone needs to do that.  Guarantee everything.”

Daniel says that the ECB has to take the reins and do that, but it won’t be without challenges.  He also doesn’t mince words when it comes to his take on European leadership.

“The problem is then, “get your house in order.” Because America’s companies are pretty ruthless about firing people, shutting down a division, offshoring. Europe’s government, I mean, Italy? They’re going to get their house in order? They’ve got a 75-year-old satire running the show. Greece is going to get their house in order? That is the problem. People say the ECB hasn’t done what needs to be done. They come in and say, we will guarantee, no one has to worry about anything, we will print as much money as needed, but the thing that has to happen after that is structural reform in these government-run countries to get their house in order,” says Daniel.

Panelist Tim Carney asks, “So to what extent are the bailout talks focused on actually saving the banks and not just preventing a disorderly collapse?”

Daniel says “This is motivating the whole thing. The Germans will say, you know, that the Greeks, they have done wrong, and they need to be punished and they have to feel the pain. It’s all about Angela Merkel not having to bail out her own banks. If Greece says, you know what, we’re all going to pay 40 cents on the dollar, all of a sudden, all these large German banks– and they pick up the phone, and they call the government. which then has to do a taxpayer bailout for their own domestic banking industry, Which is far more unpopular, and that’s not politically tenable.”

Is Greek default inevitable? Daniel says that  “I think it’s pretty much already happened. They can’t borrow on the private market. They can’t go out to the public markets and say, you know, we’d like to borrow a few billion dollars. And the debt that trades, it trades at interest rates that would make a loan shark blush. In other words, the interest rate on the one- and two-year government debt is 70%, 80%.”

He concludes, “It’s like the Monty Python skit, what we have here is a defaulted bird.”

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