Monday, April 20, 2015

11 Acts Toward a Greek Tragedy

by Mohamed A. El-Erian

Bloomberg

April 20, 2015

With negotiations faltering, the rhetoric intensifying and a daunting payment schedule ahead, there is mounting concern that the latest disagreements over Greece may be more than just another stage in the prolonged repeated game involving that country's debt drama.

The worry is that, this time, a ghastly set of circumstances is coming together to form an inevitable reality – that of Greece being ejected from the euro zone (a forced “Grexit”), which wouldn't be caused by a conscious decision, but would be the result of a huge accident (“Graccident").

Here are the 11 things you need to know:
  1. What is making this scenario seem more plausible is the simple fact that Greece is rapidly running out of money, a situation so dire that the unthinkable is on the table: a default on obligations to the International Monetary Fund, one of the world’s few preferred creditors.
  2. With such an outcome becoming more than just thinkable, the walk away from Greek financial assets has turned into a jog that could be on the verge of turning into a run. Even some of the structural holders of Greek debt, such as foreign subsidiaries of Greek banks, have been exiting their holdings. Meanwhile, withdrawals of bank deposits are probably accelerating, this after large amounts have already fled the Greek banking system.
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