If you’re getting desensitized to the Greek mess, be careful…this latest drama could last for months, and could actually end with Greece leaving the euro, says MoneyShow’s Jim Jubak.
OK, we’ve got another Greek debt crisis. How long is this one going to last? How long is it going to take to play out? Well, it’s very hard, because there are so many moving parts to construct a timeline, but let me try anyway.
May was supposed to be a really busy month in Greece. We have the inspectors from the troika—the International Monetary Fund, the European Central Bank, and the European Commission—back in Athens. They are supposed to be looking at the books and making sure that the Greeks were doing what they promised to do when they got their bailout money.
But there is no Greek government, so all of the stuff that Greece sort of promised to do in May and June really is not going to get done. The big-time deadline then becomes the end of June, when Greece was supposed to have passed a budget, as well as a plan for 2013 and 2014 to cut another €11 billion or so—that’s about 5.5% of GDP at this point—out of their budget.
The idea is that the IMF hates to fund countries where they can’t be sure that the money that they’re pumping in is going to be enough to get them to where they want to go. So they want to see a financial plan from Greece that says, hey, for the next year, we’re good.
Well, that would be great if you had a Greek government. It’s look like we’re headed back into new elections. It’s unlikely you’re going to get a Greek government with enough power to do anything about passing a budget or setting up a plan for 2013 and 2014 by the end of June. So it’s going to be up to the troika to decide what they want to do.
It’s pretty clear that Greece can probably get through June and July by finding change in the couch and things like that to keep the government’s doors open. August is going to be problematic. They’ve got a couple of big debt payments. They can’t just slide through.
So you’d say, well, July and August is the crisis. The question is, how far in advance of that do people begin to anticipate there being a crisis?
If people in late June begin to think, hey, Greece is headed out of the euro, you’re going to see lots and lots of Greeks taking the remaining money that they’ve got out of Greek banks to try to find some place to put it so that it doesn’t get all caught up in default…and that would produce a big bank run, which would then sort of accelerate the crisis.
So it’s kind of hard to figure out exactly where June, July, August, the big woo-ha is, but that’s roughly the timeline I’ve got for right now.
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