The eurozone is playing a dangerous game with Greece. Officials are treating the Greek crisis of payments as a liquidity problem. And that’s true as far as it goes. But Milton’s famous line from Paradise Lost in the title of this post may still be true for Europe
Greece nearly couldn’t pay its debt to the International Monetary Fund (IMF) last week. Greece was able to pay the IMF only by withdrawing its own emergency funds left on deposit at the IMF. Obviously the IMF gained nothing from having Greeks withdraw money they had deposited in the IMF in order to pay the IMF.
Nevertheless, eurozone officials and financial reporters keep referring to Greece’s problem as a payment-on-time problem. That kind of problem is indeed what set off the toppling of the US financial system at the start of the Financial Crisis of 2007.
But it isn’t the same with a sovereign nation like Greece. Continue reading →