SLOW MOTION ECONOMIC COLLAPSE IN PROGRESS

At the end of July Greece had completed only about 100 out of more than 300 reform benchmark set by international lenders. Greece has legislated plenty of reforms but failed to implement many of them. The stakes are higher than ever. Greece will not receive any more rescue funding until the medium-term package is in place. Without that money, the Greek government will run out of cash to pay pensions and public-sector salaries in September, if not sooner. A disorderly exit from the Euro could follow within a few weeks.  Greece exiting the Euro-Zone will crash the banking system as banks across the Euro-Zone start to fail domino style as a consequence of their direct exposure to € 400 billion of Greek debt and counterparty risks which will put immediate pressure on all of the other weak Euro-Zone members, with Spain and Portugal the next tragets for exit as a consequence of these countries being on the same unserviceable debt fuelled economic collapse trajectories as Greece. Spain and Portugal will both exit the Euro-Zone within 6 months of Greece leaving. The probable order of Euro-Zone exits from the single currency based on debt to GDP coupled with the level of economic contraction to date is the following:

• Greece
• Spain
• Portugal
• Italy
• Belgium
• Ireland
• France

Whilst contagion among Euro-Zone members may be a slow motion affair as countries one by one line up for exit, the contagion amongst the banking sector will be immediate and Europe wide as credit markets freeze, and that has the potential to accelerate the collapse of the Euro-Zone as the potential bailout costs for preventing financial Armageddon so far is beyond the means of any of the Euro-Zone member states to cover. Of course, the worlds central banks will do their utmost to prevent financial Armageddon by trying to contain the damage through a myriad of means that are now well rehearsed in such as bank capitalization, providing foreign currency swaps, and in the final instance introduction of capital controls. The fragile European banking system will fall like dominoes and not be limited to just the Euro-Zone for it will reverberate across the globe within a matter of hours as the value of the Greek and other peripheral government bond markets crash and the banking system literally freezes, especially as most of Greece debt (approximately € 250 billion) is now the direct liability of other governments. As mentioned above most of the € 400 billion of Greek debt is  now owed to other Euro-Zone member state institutions and the IMF, therefore a Greek default will have a double whammy on the Euro-Zone as institutions such as the ECB will be sitting on huge losses that will require a bailout from member states even before it attempts to rescue the Euro-Zone wide banking system from collapse.