A new credit Crisis?

The imminent default of Greece will have several repercussions:

• European Banks will have to cover for their loss on Greek bonds
• Increase of austerity measures for Greece
• Further deterioration of Greek GDP
• Greece will fall further into recession

As put by German Finance Minister: "Greece is “on a knife’s edge,” Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament."

Schaeuble travelled to a meeting of central bankers and finance ministers from the G7  in Marseille, France, today as they face calls to boost growth amid increasing threats from Europe’s debt crisis and a slowing global recovery.” (Bloomberg: see http://www.bloomberg.com/news/2011-09-09/germany-said-to-prepare-plan-to-aid-country-s-banks-should-greece-default.html)

There is no doubt for me that Greece is now in a debt death spiral. Even if Europe deals on its own, the Greek crisis is just the beginning. The debt crisis seems to spread to other countries such as Italy, Portugal and Ireland, and nothing seems to stop it. Will China rescue Europe? And at what price? What is the role of the US?

For Greece the Austerity Plan has made things worse by reducing GDP, worsening unemployment and reducing the capability of the country to repay its debt. At this point  EU countries will have to support their own banks to bail out Greece which will very likely default. 

Greece Default Risk Jumps to 98%