2010-06-25

Possible scenarios for Greece

Michael Pettis gives a great overview of what could happen with Greece in:
What might history tell us about the Greek crisis?
Here are his five predictions:
1. The euro will not survive in its current form.

2. This is the big one

3. The European crisis will be accompanied by a trade shock.

4. The economic recovery in the countries hit by crisis will not begin until they are recognized as insolvent and receive debt forgiveness from their creditors.

5. Greece’s insolvency will not be recognized for many years.
The article goes into detail on each, plus compares the current situation to the LDC crisis of the 1980s.

Hugh Hendry mentioned the trade shock in his interview with Bloomberg yesterday, comparing today with the spike in the U.S. dollar in the early 1990s, which led to cheaper European exports that then knocked out the Asian Tigers with the Asian Crisis.

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