Who Gets Hit Hardest In A Greek Default?

Jim Jubak MSN Money February 17, 2012

2/16/2012 7:58 PM ET

By Jim Jubak

I'd bet right now on a Greek debt default sometime this year. Here's a look at who'll get hit hardest -- and how the damage could be limited.

Jim Jubak

The odds of a Greek default and the country's departure from the euro are rising again.

Paddy Power, Ireland's biggest bookmaker, quotes odds of 5-4 that Greece will be using the drachma again by the end of the year. The country also is the betting line's hands-down favorite for the first country to leave the euro at 1-4. Portugal is a distant second place at 8-1.

But what would a Greek default and departure from the euro actually mean?

I've seen a description from hedge fund manager John Paulson calling the resulting chaos "a greater shock to the system than Lehman's failure, immediately causing global economies to contract and markets to decline." A Greek default and exit from the euro would likely spell the end of the euro, he has said.

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47CommentsNewestOldestBestWorstControversial 123 DXZ864338 minutes agoThe problem with Greece is that they don't produce anything. Major Greek industries are shipping and tourism, which heavily depend on foreign demand, and is vulnerable to downturns in the global market. This, more so than anything else, is why Greece's economy is still on the rocks. In more mature economies like United States, Germany, and UK, there's a lot of technological research and innovation, resulting in demand for new products. This produces stable industries that are more resistant to downturns in the global economy. Examples of such industries include IT and healthcare, these industries are typically more resistant to a recession than most other industries, and prevents unemployment from rising too high. 7 0ReportSpammouser11 hour agoPeople need to realize the world is heading to war, people thought WW II was bad, considering the moral decline of society in the last 60 years World War Two is going to look like a a game of pattycake. 24 9ReportSpammouser11 hour agoI don't get what a big deal this is I am middle aged and I do not think I having ever possed let alone seen anything that was produced in Greese, even thier food sucks!!!! 5 13ReportSpamIDK and ME1 hour agoThere is one thing good about a Greece default. The rich and the poor will be equal in Greece and they all will be starting over together. True democracy in action. 13 8ReportSpamwww.affluentlove.com851 hour agoLife-is-sweeter-when-you-have-someone-to-share-it-with. Here-to-look-for-someone-that-shares-similar-interests-and-stature, somebody-with-a-fun-attitude-who's-ready-to-be-taken-on-the-ride-of-their-life. 0 18ReportSpamjlum1 hour ago100% of nothing is still nothing. Creditors have got to be willing to walk away with less than 100%. The value of bonds or money is what people or countries give them. I do not feel that the reward is worth the risk. The US market will be ugly. Greece is done. Put a fork in it and walk away. 7 2ReportSpamN.Auyeung2 hours agoIt is the Eurozone's false to let Greek decieved into the system. It is forseeable ten years ago. The next will be Spain. Eurozone better took over Greek and reconstruct the system or it will be the end of eurozone. The whole eurozone was a big mistake to begin with over ten years ago. Different cultures and languages will have different thought of the economical systems. To unite them has to unite the whole Europe, under one language and one system. Go back to our past history and you will find a lot of examples. 12 3ReportSpamgaladiator2 hours agoMR Jubak Ihave a hard time finding any creditabilty in any thing you write---when I ( as an insider to the mortgage crisis wrote to you befor the buble burst--you all but called chicken littles and discounted our warning to readers- and your counterpart Mr Fleckenstein who also agreed with me at the time was discounted by you----Therefore your comments are to say the least suspect to my way of thinking---We are experiencing an monetary purge World Wide ---The world has over extented credit lines most credit not tied to any asset based lending. The world banking system is currently running credit on false assumptions in that there has been no real devaluation of personal holding simple devaluation of real estate. however if the banks were to really examine [lines of credit] base on todays economy you would a vert serious and troubling picture---most can't cover there debt if liquidated----Scary! 21 3ReportSpamcomsense2 hours agoThe stock market will hiccup for a few days, then business as usual. This is a miniture example of US economic direction. Kicking the debt and monetary policy flaws down the road. Eventually, all debts must be repaid, either by defacing currency value (watered down values) or actually paying them off with value. Of course a default (similar to unpaid mortgage or skipped car payments) will work too. A default would trash the Greek economy for years. In the case of US policy, it would be impossible to deface currency this far without creating a second underground economy. In a underground economy, things of value, commodities etc or goods would be traded, outside the tax system and NOT using currency. I suspect that eventually stagflation will return in the US before hyperinflation sets in. I also suspect that last calendar years 3.2% inflation was much much higher as reflected in current goods and staples costs. With our population size governments everywhere are in fear of mass economic panic. Remember the panic period just after 9-11, long lines at gas stations etc. 11 1ReportSpamshifletto2 hours agoIf Turkey attacked Iraq from the rear... would Greece help !! 3 2ReportSpamJack Wipper3 hours agoIn a debt based monetary system weakest borrowers are guaranteed to go bankrupt when the money supply deflates. That happens periodically due to the nature of it. Greece and the next weakest and probably the next weakest cannot be saved. Google for DEFLATIONARY CRASH KONDRATIEFF WAVE to understand why. The finances of a country is quite different than the finances of a family. In a debt based monetary system, the budget cannot be balanced for a long time because the money supply (all the money we have) was borrowed at interest. It was created when we borrowed. It will never be paid off. And in order to pay the interest, we need to keep growing the economy at all times. But in a limited world that may not always be possible. Clinton's balanced budget was a coincidence, not making of his own. Presidents do not run the economy. Social mood does. As the mood changes, expansion and contraction of credit, aka money supply, creates economic cycles like Kondratieff wave. We are now in Kondratieff Winter. Until spring, all efforts will fail. 12 2ReportSpamflavafrav3 hours agoIf what you say is true about a default this year occurs, then the kick the can game absorbed about $500-750 billion more than a default 1-2 years sooner. I have a hunch it is only an inflation factor since it is 'only' printed money that was used, but it still goes to show that you can't save a overly dependant group with extending more and more and more. 9 2ReportSpamErnest Murdock3 hours agoIf everone listens to all the experts when Greece will default they will tell you that it will be disastrous and the end of the "euro". This is the same story when the date from 1999 to 2000 that all the plane, trains, banks, lights, cars, everything that could be thought of would happen the whole world would collapes. Well it didn't everything I mentioned still works and worked on January 1, 2000. The same is happening now. Nothing is going to happen to Greece. They will default and restructure their monetary system and hopfully will learn from their mistakes. (Let's hope so) The markest will be down for a few days people are not going to jump out of windows or shot themselves nothing like that is going to happen. It will show all the economist and hedge fund managers were wrong. Does the United States have a big stake in Europe yes we do, ways will be found to see that Greece doesn't default again for another 25 to 50 years. Let the chips fall were they may and take it from there. Not even Queen Cleo can figure this one out. 9 7ReportSpamAgemingle. com4 hours agoOh great article ,Age ain't nothing but a number for these loved-up A-Listers. My BF and I both think so! He is almost 10 years older than I .We met via~~--Ａge'Ｍｉｎｇｌｅ .С’ o M~~ a nice place for younger women and oldermen, or older women and younger men, to interact with each other! Maybe you wanna check it out or tell your friendsthen the us. this is what happens when you pay medium and low skilled workers 2.5 to 3 times what they are worth in the real world! the numbers dont lie. hell the lazy Europeans dont even work a 40 work week and they START OUT a new job with 6 weeks vacation. the lazy gumbas in italy take the whole month of august off. no wonder they're all socialists on the euro. my apologies to the great nation of germany who is carrying all of europe! 0 17ReportSpamgreed from top and workers4 hours ago

Argentina had a default, and now seems to be doing fine.

Yes would be tough on Greece, but long term the best solution.

14 6ReportSpamGreg Nergenah (gnerg)4 hours agoGreece is the world's 37th largest economy with a GDP of over 312 billion compare that to the State of California who has the 8th largest economy in the world with a GDP of over 1.9 trillion dollars. What I am saying is no Greece won't affect the world's economy on a long term basis, just on a short term basis. Greece is too small and has had a bad economy for some time. Their real problem is their 20% plus unemployment rate. We still need a strong European economy so hopefully other countries can continue to improve their economies for a stronger Europe. I feel that Greece will recover from this situation and just needs support. As far as the world economy I am more concerned with possible events in the Middle East and what negative affects the price of oil, or armed conflicts will have on the economy 27 4ReportSpamjoey7214 hours agoI'd say Greece is already in default, The sovereign countries and ECB are just scrambling to minimize the damage to the euro-zone. 37 1ReportSpamShartGarfunkel4 hours ago

I think the global economy has to look at this as a long-term problem, instead of how it's going to affect us personally and immediately, as Americans are wont to do.

13 2ReportSpamRGP15 hours ago

The pro-stimulus crowd believes this is the cure for all economic ills. Just add more debt and "targeted" government spending to make everything better. They argue austerity only perpetuates slow economic growth and lower standards of living for the masses. However, none of these Keynsians can show the effects of austerity as being negative longterm. Over the longterm, austerity reduces government dependency on revenues; lowers debt interests payments; and regulatory costs while allowing increasing levels of resources to stay in the private sector creating jobs. Look to several prosperous countries in the middle east, Asia, and South America for example - even Iceland is showing what debt-liquidation austerity can do.

27 7ReportSpamhavasu465 hours agoThe ECB is swapping it's bonds for new ones exempt from terms of debt restructuring. “In Europe, all bond holders are equal, but the ECB is more equal than others, apparently,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “This could set a dangerous precedent, and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets.”

The EU is screwing the private Greek bondholders just like the US screwed the GM bondholders. Next on the EU and US agenda is screwing their citizens that hold retirement obligations supposedly backs by government trust funds like the SSA Trust Fund. Opps, we have going to have to pay SSA retirees with dollars worth 50 cents. The enemy is not in the Middle East it's in our own governments.

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So, should you be quaking in your boots or switching from CNBC to watch Linsanity on ESPN?

As with so many investment questions, the answer depends on the time frame.

In the short run, I think a Greek default and possible departure from the euro would be devastating to Greece, but not an especially big deal to European or global financial markets.

In the long run, I think a Greek default would indeed hit the euro hard, sending interest rates skyward in Italy and Spain, and ending the eurozone as it's currently constructed.

Let's start with the short term, OK?

Argentina had a relatively easy time pulling itself out of the hole created by the default, thanks to a boom in global commodity prices. But Greece isn't the commodity exporter that Argentina is.

Who Gets Hit Hardest In A Greek Default?

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