Eurozone Fearful Greece's Crisis Will Spread
STEVE INSKEEP, host:
Now let's try to sort out the implications of Greece's financial troubles with Martin Sandbu. He's been writing about this for the Financial Times. He's on the line from London.
Welcome to the program.
Mr. MARTIN SANDBU (Journalist, Financial Times): Good morning.
INSKEEP: Let's remember first how it is that Greece's financial trouble could affect or is affecting other European countries. It's primarily because they've got the same currency, right?
Mr. SANDBU: It is partly because they have the same currency. It's partly because of the psychological effect in the markets. You know, we've been through two years where one unthinkable thing after the other has been happening. The next unthinkable thing is a default within the eurozone. If that happens in Greece, investors are already worried about countries like Portugal, countries like Spain. Those investors will start to worry that the same might happen there.
INSKEEP: So, part of this is psychological. The other part involves what you just called the eurozone, the area where the euro is the currency. There's been some talk recently of perhaps Greece just leaving the eurozone and going back to its own currency. Is that even possible?
Mr. SANDBU: I think it's only possible if Greece itself decides to do so. You can't really force a country not to use the euro if it really wants to. So, it's really up to whether Greece sees it in its interest to leave. Now, why would it do that? Well, if it could devalue, that might help exports. But I really think they'd be mad to leave the eurozone, because their debt is all denominated in euros.
So, if they're worried about the debt problems, that would just get worse if they left.
INSKEEP: Oh, because if they went to their own currency and that currency started going down in value, their debts, in effect, would get larger and larger and larger. (unintelligible)
Mr. SANDBU: That's exactly right.
INSKEEP: Wow. What is happening to the value of the euro at this moment?
Mr. SANDBU: Well, the euro's been slipping a little bit. A lot of people are making this interest story about the stability of the euro. I think that's alarmist, really. I mean, think about the euro, when it was launched 11 years ago, its value was, I think, $1.16 U.S. dollars. It then fell to $.87. It then went up to close to 1.50. It's now back at about 1.32.
This is what currencies do - they go up and down. And, in fact, if you look at the value today, it's still in the higher end of the band it's been trading in in the past decade.
INSKEEP: Well, because you're worried about people over-blowing this crisis, let's ask another question along those lines. Let's say Greece does have the worst happen, that they get close to or actually default on loans. Let's say there is terrible, terrible trouble in Portugal and Spain. Are those countries, or the psychological effect of disaster in those countries, serious enough to cause a shock to the whole world economy?
Mr. SANDBU: I think it could very easily spill outside of the eurozone. As we know, markets have these self-fulfilling properties where, once people get scared, they pull out and they cause the disaster they fear. That might happen to Greece. If it does happen to Greece and you have contagion to places like Portugal and Spain, there are some obvious places that are next.
The U.K., where I'm sitting now, is not part of the eurozone. It has its own currency, but it has a pretty scary debt dynamic. And there are a lot of noises here about how the U.K. could be next after a series of potential eurozone defaults.
INSKEEP: If other European countries do come to the rescue of Greece, as we've been hearing about this morning, will that solve the problem?
Mr. SANDBU: It depends whether they really mean what they're saying. You have eurozone leaders now saying they think Greece is doing what it should be doing to get its debt under control. Now, if that's true, what you want to do is to save Greece from one of these self-fulfilling panics in the debt market.
Now, just yesterday, reportedly, the IMF managing director, Dominique Strauss-Kahn, said that the kind of money needed would be on the order of 120 billion euros. I think that's exactly right. If you actually want to keep Greece out of default, given that the markets seem to have given up on Greece right now, then that's the kind of money that you have to put on the table.
INSKEEP: Martin Sandbu writes about economics for the Financial Times. He spoke with us from London. Thanks very much.
Mr. SANDBU: Thank you, Steve.
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