‘Perfect Storm’: In Case You Still Don’t Get It, Here’s Why A Greek Default Should Put ‘Fear In Your Heart’

“NEW YORK (AP) — Remember Greece?

It’s been two years since a financial crisis erupted in the birthplace of drama, and the final act is still unfinished. A second week of talks in Athens ended Friday with no deal between the country, the European Union and private holders of Greek bonds.

Remarkably, even after the crisis became such an international worry last year that the leaders of France and Germany were actually referred to as “Merkozy,” the European debt bomb could still explode, with Greece as the fuse.

Economists and investors see a Greek default as the biggest test of the world financial system since the crisis that followed the collapse of Lehman Brothers investment house in 2008.

It is also the biggest threat to what has been a successful start to the year in the U.S. stock market. The Standard & Poor’s 500 index has gained 4.7 percent, roughly half its average for a full year, in just four weeks.

‘If talks break down next week and it looks like they can’t reach a deal, it raises all sorts of risks,’ says Jeffrey Kleintop, chief market strategist at LPL Financial. ‘The stock market could probably lose half its gains for the year.’…

A breakdown in talks could trigger steep losses in stock markets in Europe and the U.S. Just as in 2008, banks could stop lending to each other, and the credit freeze could cause a market panic.

More importantly overseas, it could cause borrowing rates for Portugal and Italy to jump, pushing those much larger countries closer to defaults of their own.

That’s only the beginning…” Read more.

Eurozone crisis: angry Greeks condemn EU plot to control its finances – “Greece has reacted furiously to a German proposal that an EU budget commissioner with oversight of its economy be installed in Athens after mounting speculation that international lenders will have to stump up yet more money for the country. The escalating row threatened to eclipse Monday’s summit after Greece’s finance minister, Evangelos Venizelos, issued a tart response to the suggestion, saying his compatriots were themselves capable of fulfilling the ‘historical obligation’ to take the country out of crisis. The proposal, in a leaked document, argued for the creation of a commissioner with veto powers over the Greek budget, saying Athens’ inability to meet fiscal targets had made the post a precondition of further rescue funds from its ‘troika’ of creditors: the EU, IMF and ECB.” Read more.

Pundits fear ‘perfect storm’ despite official optimism – “Despite attempts by political and business leaders to suggest the eurozone has turned a corner, the prevailing view of pundits is things can only get worse and a “perfect storm” is brewing… Some of the players most closely involved with the crisis since the 2008 financial meltdown insisted there was now light at end the tunnel with European Central Bank president Mario Draghi hailing ‘outstanding progress’… But, in an end of forum debate, experts predicted the break-up of the eurozone, economic malaise in the United States and a rise of militancy — and then there are the consequences of a conflict over Iran’s nuclear programme.” Read more.