Having falsely linked the problem of over indebted states with the canards of the survival of the Euro and the Euro-zone itself, Europe is increasingly drifting towards an inevitable, disastrous and destabilising debt crisis. Rather than amputating a gangrenous limb, European leaders risk poisoning the entire body fatally – weakening the financial positions of the stronger Euro-zone members and their economies, which are paying for the bailout and will suffer the losses when the inevitable defaults come.
The effect on wider money markets and the global economy of any defaults is unpredictable. Depending on the quantum of losses and the recapitalisation requirements, the event could create concerns about affected Euro-zone banks, providing a channel for contagion in financial market. This could destabilise markets, transmitting the shock through high cost and reduced availability of financing, in a manner similar to what happened after the bankruptcy filing by Lehman Brothers in 2008.
