This is How the Global Economy Collapses

OK, I admit that headline was total linkbait.  But I don’t care because I want you to read this – this is the global macro bear case written better than anyone else has broken it down before.  The below comes from The End of the World As We Know It by Dani Rodrik at Project Syndicate:

CAMBRIDGE – Consider the following scenario. After a victory by the left-wing Syriza party, Greece’s new government announces that it wants to renegotiate the terms of its agreement with the International Monetary Fund and the European Union. German Chancellor Angela Merkel sticks to her guns and says that Greece must abide by the existing conditions.

Fearing that a financial collapse is imminent, Greek depositors rush for the exit. This time, the European Central Bank refuses to come to the rescue and Greek banks are starved of cash. The Greek government institutes capital controls and is ultimately forced to issue drachmas in order to supply domestic liquidity.

With Greece out of the eurozone, all eyes turn to Spain. Germany and others are at first adamant that they will do whatever it takes to prevent a similar bank run there. The Spanish government announces additional fiscal cuts and structural reforms. Bolstered by funds from the European Stability Mechanism, Spain remains financially afloat for several months.

But the Spanish economy continues to deteriorate and unemployment heads towards 30%.  Violent protests…

Keep Reading:

The End of the World As We Know It  (Project Syndicate)

hat tip Counterparties

 

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