New Yorker
October 10, 2011
Outsiders to the world of money who start to take an interest in it soon notice that most of the things that alarm and outrage the wider public are taken by insiders to be perfectly routine and unremarkable. Consider the sums that bankers get paid, or the disruptive impact of hot money zipping around the world at the click of a mouse, tearing up industries and whole economies at will. To moneymen, those are just givens of the way the world works, and have to be accepted, in the absence of a credible plan to go off to found a new system on another planet.
Once in a great while, though, something happens that reverses the loop, and has the moneymen more scared than the rest of us. That happened in late 2007, when the credit crunch began, and it’s happening again now. The cause is the crisis affecting the euro, and the risk that the economic difficulties of the seventeen euro-zone countries will break up the European Union. That prospect once seemed like an alarmist fantasy. Today, it is something that reasonable people see as a possibility—and if it did happen it would cause a financial convulsion that would make the collapse of Lehman Brothers seem like a theme-park ride.
The proximate cause of the current crisis is the economic situation in Greece. The Greek state, having relied for years on borrowed money and largely fraudulent economic data, cannot meet its debts, which are approaching half a trillion dollars—a lot of money for a country with a population of eleven million. As a result, Greece is verging on a default on its debts. The only question is whether the default will be orderly, cushioned by loans from the European Central Bank and the International Monetary Fund, and with deals about enforced losses to bondholders, euphemistically known as “haircuts,” in place. If it isn’t, the sequence of events will be chaotic and impromptu, and will almost certainly involve Greece’s exit from the euro zone and potentially also from the European Union.
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