By Christina Kostopoulou
How far will whatever is happening in Greece, ripple out across the world? Is it really possible that the crisis there will infect the markets and the economies the same way Lehman Brothers did? Most economists say “yes.”
Greece itself has now the lowest sovereign debt rating in the world: CCC according to some of the rating agencies. It’s just about on default level. Those Greek bonds that are now rated so lowly, are held by German banks up to about $34 billion dollars and French banks up to $53 billion. These money is not just bonds but liabilities to Greek banks, Greek companies and money put to the Greek economy at large.
The ripple affects will quickly go through the European Central Bank which for months now has been buying Greek bonds in an effort to keep the market liquid. If there’s a default by Greece, all of these bonds will become worthless and these banks will face major losses. But it won’t stop there…
In the United states there’s also a direct exposure to greek bonds along with credit default swaps up to $41 billion. Money markets have also been big buyers of debt. In the US there ‘ve been buying the short term debt of the French and German banks.
What happened with Lehman Brothers is an appropriate example of how exactly the Greek crisis will affect the rest of the world economy. In an interconnected world, whatever happens in one country, rapidly spreads out of control affecting all markets. EU is doing its best to ensure contagion doesn’t happen, but so far they seem to be lagging behind.
