The pressures are intense. Greece’s government despite promising austerity for many months is still spending more than it promised and much more than it takes in. The situation has led to Greek debt being re-financed at higher rates than the expiring debt, leading to more money being spent on interest, and making the Greek economy unsustainable. The rest of Europe has a few choices, all of which seem bad to them – give Greece money, let Greece borrow with impunity and European guarantees, let Greece exit the Euro, or, more preferably, help Greece for a bit while they fix their own problems.
This last strategy is the one they are taking, but Greece isn’t making progress fast enough to keep anyone happy. The German government, like other European governments recognizes the importance of sorting it out, but the German people are not solidly behind the idea of giving Greece much latitude.
That Greece is defaulting seems to already be true. In many senses, some of the recent re-negotiations are already “not honouring the terms of their original debt” – which sounds a lot like a default. However, everyone’s still being polite, for now.
What comes next will be anyone’s guess.
The Greek default was probably unthinkable 18 months ago. It seems likely today. Being unprepared for it is unwise. Companies with exposures to the Greek situation (big banks and multinationals) should have been taking the last few months to build firewalls for themselves, and many have.
A second issue is how a Greek default will affect Europe more generally, and Ireland, Spain, Italy and Portugal more specifically. There are lots of other “unthinkable” questions out there.