TIME BOMB IS TICKING FOR GREECE!

A Greek deal must be reached before March 20, when Greece is due to receive a further €130 billion “bailout tranche” from the International Monetary Fund, and then must make a key €14.5 billion bond payment. Of the €315 billion of Greek debt outstanding, only €7.8 billion of that debt is covered by Greek credit default swaps, and the vast majority of Greek debt (€ 120 billion) is held by European banks, which have little insurance on their exposure.

What happens if Greece goes bankrupt. Here are a few things:

• The Greek government would no longer be able to pay state officials, water and electricity will be shut off and companies would slide one after the other into insolvency.
• Every bank in Greece would instantly go insolvent. Athens would also stop servicing its debt. That would affect above all, Greek banks because the state owes them around € 60 billion.
• The Greek government would nationalize every bank in Greece.
• The Greek government would forbid withdrawals from Greek banks.
• The Greek government would declare a curfew, perhaps even general martial law.
• Greece would redominate all its debts into "New Drachmas" or whatever it calls the new currency. The New Drachma would devalue by some 30-70 percent (probably around 50 percent, though perhaps more), effectively defaulting on 50 percent or more of all Greek euro-denominated debts.
• Greek exports would indeed become immediately more competitive, yet that would hardly make the situation easier for Greece because the country's obligations would still be denominated in euro. That would make Greece's debt burden much higher and that would lead to an even larger debt write-off.
• A number of French and German banks would make sufficient losses that they no longer meet regulatory capital adequacy requirements.

Europe would be able to absorb the hit. It's not the bankruptcy of one particular bank or another that is of concern but rather a contagion within the eurozone that would choke the economies of entire nations. If Greece goes bankrupt, Ireland and Portugal would almost immediately need a bailout: They would not be able to borrow on the open markets the money they need in order to continue funding their governments.