Consequences of Forgiving Greece's Debt: Unveiling the Hidden Risks and Economic Fallout

What if the institutions in which Greece has its debt simply decided to delete all the debt? While this may seem like a bold and revolutionary action, the reality is that such a move would likely lead to a new debt within a few years. Greece currently does not possess the necessary structure to foster growth, create new jobs, and achieve sustainability. Despite its budget surplus for the first half of 2017, the achievement was marred by over-taxation and stringent austerity measures.

The Global Financial System's Vulnerability

It is becoming increasingly evident that several countries, starting with Italy, may start refusing to pay back their debt. This scenario could lead to the collapse of the ailing European and global financial systems. A world without traditional investment banks and monetary funds might emerge, where there would be no ultra-rich individuals, and neo-communism would pave the way for a new era of social equality and mutual support.

Limitations of Currency Printing

The International Monetary Fund (IMF) does not print euros, pounds, or dollars. They can create Special Drawing Rights (SDRs), but the extent of their monetary influence remains uncertain. Printing money and distributing it comes with a significant cost, which is shouldered by those who hold the money as savings or fixed-income assets. Money is an acquisitive capital, not a social one.

The Complexity of Financial Institutions' Exposure

Writing off Greece's debt, while appealing in theory, presents complex challenges. Unlike writing off a stock of a single company's bad investment, the interconnected nature of financial institutions means that a relatively small risk in a few institutions can trigger a chain reaction. Each debt holder is essentially calculating the level of risk associated with Greece's debt:

What proportion of their credit portfolio is allocated to Greek debt? What is the ratio between the previous item and their equity? How are these loans linked through the financial system, potentially leading to further defaults?

These calculations are relatively straightforward, but the hidden risk lies in the loan chains. If institutions have extended loans to other institutions that lent money to Greece, they are exposed. The cascading effect of defaults through the financial system makes it impossible to predict the full extent of the damage.

Global Economic Stability Concerns

Financial institutions are deeply interconnected, and a domino effect can occur. While the immediate risk appears manageable, the unknown variables make it difficult to forecast the final outcome. The fear of panic and systemic collapse is a major deterrent for any large-scale write-off.

In conclusion, while the idea of forgiving Greece's debt may seem like a panacea, it is fraught with risks. The financial systems of the Eurozone and beyond are intricate and multifaceted, and any major action would have far-reaching and unpredictable consequences. The current stance, while not ideal, represents a cautious approach to maintain global economic stability.