Make no mistake, the sovereign debt crisis currently playing out in the euro zone is serious. Meetings, followed by more meetings, followed by mass - often violent - demonstrations, show a region on the brink of a financial disaster. We're not talking about a fiscal crisis, that's already here. Greece has already asked for financial assistance and helped cause a slump in the Euro to record lows. We're talking about an impending financial disaster.
What is astonishing is that the same mentality that got many countries like Greece into this mess is the same mentality preventing them from an immediate recovery. There's no fiscal discipline. Even the government's last ditch attempt to save the economy by selling off public assets is being met by strong criticism because people are afraid of pay cuts or losing their jobs - something that simply must happen. This isn't about being fair, it's about surviving, and there will be casualties.
Other, more well-off countries and financial authorities understandably also do not want to share in the burden. Everyone's trying to pass the buck...literally. It's a tough environment for many developed countries to grow in the first place, let alone trying to support another country in the process - for no obvious benefit. But there in lies the issue. The benefit would simply be the maintenance of the financial stability of the euro zone. Unless other governments insist the private sector shoulder some of the debt burden, we may well see Greece default on its debt obligations (declare bankruptcy). If that happens, a run on banks and a full-blown credit crisis would be a real possibility.
IMF acting managing director, John Lipsky, said recently "the implications would be much more serious if (the crisis) were to have consequences on the financial system of the core economies." That's the train wreck.
So we're waiting/relying on several things. For Greece to enact further austerity measures and raise funds through the privatisation of many public assets, for other, stronger, euro zone countries to lend financial support, and for the private sector to shoulder some of the debt burden. It's a race against time, but much of the evidence points to a train that has already derailed and headed over the edge.
It may well be time for the authorities to prepare the markets for a Greek debt default. That's akin to sending the emergency service vehicles to the crash site before the train's even come to a halt.