A Greek Default Would Hit the ECB Hard

[marmar]

from Der Spiegel:



Hopes that Greece can be saved are dwindling. Athens had hoped to reach a deal with its creditors on a 50 percent debt haircut, but banks have now made it clear that efforts to reach an agreement could fail. Should the country go bankrupt, the European Central Bank stands to lose the most.

The stakes for Athens are high. The Institute of International Finance is saying the deal on a 50 percent debt haircut for Greece may fail. Time is running out, and a number of key issues remain unresolved. The Greek Finance Ministry, for its part, insists that an agreement could be finalized by the end of next week.

Amid the confusion, however, one thing is clear: Should private investors not reach an agreement with Athens on debt reduction for Greece -- a step agreed to by European Union leaders at a summit last October -- the country and the entire euro zone face a disaster. An uncontrolled insolvency would be the result. In an effort to forestall that eventuality, euro-zone representatives met on Friday to discuss the debt reduction plans, parallel to the talks in Athens.

The hectic negotiations reveal that hopes have been dashed once again for an improved situation in Greece. This year things were supposed to be better. The Greek economy was supposed to slowly make its way toward recovery, with austerity measures taking hold and the debt mountain finally showing signs of shrinkage. But the only thing shrinking in Greece right now is hope. It now looks as though Greece, even on the long term, will be unable to free itself from its tremendous debts. ..............(more)

The complete piece is at: http://www.spiegel.de/international/europe/0,1518,808998,00.html