Eurozone Fearful Greece's Crisis Will Spread
STEVE INSKEEP, Host:
Welcome to the program.
MARTIN SANDBU: 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?
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?
SANDBU: 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)
SANDBU: That's exactly right.
INSKEEP: Wow. What is happening to the value of the euro at this moment?
SANDBU: 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?
SANDBU: 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?
SANDBU: 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.
SANDBU: Thank you, Steve.
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