The grueling torrid heat of this September gives the Mediterranean countries a tropical something, a Latin American touch. But there's more to make southern Europeans sweat on nights this weekend. The prospect that the agony (from "????") of the Greek crisis (from "???s??") could come to an end (from the Greek “?p??????”).
The price of Credit Default Swaps (CDS, instruments with which one hedges against the risk of bankruptcy of a counterparty) now quantifies al 97% probability that Greece will be forced into default. Therefore, barring improbable miracles, the Greek government will declare its inability to honor its debts. If by October Athens does not receive the installment of the international loan that has been granted, it will go bankrupt. And, perhaps, the unusual visit of US Treasury Secretary Geithner to the last meeting of the European Council on economic and financial affairs also smacks of last rites.
According to the experts – two reports by UBS and Citigroup are circulating – a Greek exit from the euro is possible with a return to the drachma at a much devalued parity and there is even fear of the imposition of constraints on capital movements; but, even if this did not happen, Greece would still be forced to announce a reduction, estimated between 30 and 50%, of its debt: that is for every 100 euros of debt he would repay only 50, at most 70. It goes without saying that this implies a complex operation, which is best done at the weekend when the markets are closed. So sensible Greeks are sweating in their alcoves. And for this reason in Greece the race to withdraw savings from current accounts and bank deposits has already begun and brings to mind the sad lines of savers in front of the branches of the British Northern Rock in the summer of 2007, at the beginning of the crisis.
But we also sweat elsewhere in Europe and above all in the other southern countries. The Greek default could set off a chain reaction, spreading the pestilence. First of all, significant losses would befall financial and insurance institutions both due to the direct losses of those who lavishly bought Greek bonds, and because Greek banks would also likely default, giving creditors a blow. Consequently, as in 2008, European governments should intervene to save institutions in difficulty. And, even in this way, which would further worsen public deficits, the plague could infect sovereign debts in the rest of Europe. It is well known that, despite the interventions of the ECB, the risks of sovereign default have already risen in Ireland, Portugal, Spain and Italy, coming close to France. Just as in the 1992 attack on the EMS, reassured by having won the first battle – the one on the Greek default – speculators would multiply their attacks on the other PIIGS. In this scenario, in the absence of coordinated prompt and drastic interventions, which we may not have given the insufficient political cohesion in Europe, the prospect of decomposition of the euro would become concrete. And, should sovereign defaults indeed extend to Italy and Spain, the unraveling may not stop at the currency. Indeed, the competitive devaluations – associated with euro exit – of small countries might be tolerable for non-defaulted EU members, but there is no guarantee that the same would be true for larger ones. In short, if all went wrong, as well as ending up sweating in bed every weekend, we would risk saying goodbye to the European economic union as we have known it to find ourselves in an old continent devastated by trade wars.
It hardly needs to be remembered that this was the situation eighty years ago…and it didn't do anyone much good. Moreover, our country runs the risk of being the weakest link despite the fact that, if well managed, the large endowment of private wealth would easily allow us to get out of the quagmire (remember, for example, Giuliano Amato's proposal to reduce the public debt with a serious patrimonial intervention). Indeed, in these situations, the credibility of institutions and, above all, a government capable of quickly making difficult decisions is essential. Anyone who travels or frequents the international media is well aware that while Spain is perceived as a serious interlocutor, the same cannot be said for Italy, which is seen as a curtain raiser of dwarfs and dancers. Maybe it's time to fix it before it's too late.
If I had Manzoni's pen I would wonder who it was who until a few years ago said that everything was fine, that we had entered the era of the "great moderation" - a new golden age characterized by sustained growth, with low inflation and unemployment – instead of warning us of the coming plague? Give it to the infector!
