Is the Greek debt crisis about to explode out of control? According to Der Spiegel, the government of Greece is considering leaving the Euro and reestablishing its own currency. If that happened, it would throw global financial markets into chaos and it might mean the end of the euro as a pan-European currency. But the Greek government has to do something about all of these debts. At this point Greece is literally drowning in debt. The yield on 10-year Greek bonds has now reached an astounding 15.51%. There is no way that is sustainable even for the short-term. Greece is rapidly going bankrupt. Even with absolutely brutal austerity measures in place, the debt just continues to explode. There are protests against the government almost daily and Greece is in a state of chaos. Unfortunately, because Greece is part of the euro they can’t just start printing lots of money as a way to get out of this crisis. Now there are persistent rumors that Greece really is thinking about leaving the euro, and that could potentially mean big trouble for the world financial system.
It was a new article in Der Spiegel that brought these rumors to the forefront again. Der Spiegel says that it possesses secret Greek government documents that discuss plans to leave the euro. Der Spiegel also claims that a secret crisis meeting was held in Luxembourg on Friday night to discuss this crisis.
The following is a brief excerpt from the Der Spiegel article that caused the financial community in Europe to be in such an uproar today….
“The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.”
So was there such a meeting in Luxembourg on Friday night?
Well, it turns out that there was a meeting of a small group of European finance ministers. But according to German government spokesman Steffen Seibert, this meeting was planned well in advance and had nothing to do with Greece leaving the euro….
“There is a meeting of some finance ministers that has long been planned. Greece exiting the Eurozone is not on the agenda of that meeting, and it has never been.”
So is Greece actually thinking about leaving the euro? All over Europe this notion is being denied.
Perhaps the strongest denial was issued by the Greek Finance Ministry….
“The report on an imminent Greek exit from the eurozone, as well as being untrue, has been written with incomprehensible levity despite the fact that this has been repeatedly denied by the Greek government, and the governments of other EU member states.”
What was probably being discussed at this meeting of European finance ministers is a restructuring of Greek debt. This is something that Germany has apparently wanted for quite some time according to a recent article posted on Business Insider….
For weeks, German officials have been hinting that they want a Greek restructuring to happen. German economic advisor Lars Feld recently said that the restructuring should happen “sooner than later.” He’s previously also said “restructuring is the only road to take.”
So what would a restructuring of this debt look like? A recent article on CNBC gives us some clues….
More importantly, tonight’s finance ministers meeting might lay the groundwork for “extending the maturities” on those loans — giving Athens a little more oxygen until it probably ends up restructuring its $470 billion existing debt by either extending maturities or exchanging Greek bonds, at a discount, for EU-guaranteed bonds, Brady Bond-style from the 1980s.
What Germany does not want is for Greece to even think about leaving the euro. According to the article on Der Spiegel, German Finance Minister Wolfgang Schäuble is ready to play hardball with the Greeks. Der Spiegel says that a report has been prepared that would lay out for the Greeks the severe consequences of leaving the euro….
“It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 percent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.
Greece is really in a tough position. They are going to go bankrupt if they stay with the euro and they are going to go bankrupt if they leave the euro.
Meanwhile, the anti-government protests continue. The Greek people are not happy. The Greek economy is coming apart like a 20 dollar suit. Greece could end up being the spark that sets off a massive financial panic in Europe.
As I have written about previously, the European debt crisis is on the verge of spinning wildly out of control. It is not just Greece that is facing a horrific debt crisis. The financial problems in Europe literally span the entire continent.
A lot of Americans are obsessed with the death of the U.S. dollar, but the truth is that there is a strong possibility that the euro could end up collapsing before the dollar does.
Keep an eye on Europe. The European debt crisis could plunge the entire global financial system into chaos at any time. Things are not nearly as stable as they seem.