Here is a part of an interview dated May 23, 2011 and published in the online Der Spiegel, with Jean-Claude Juncker, the prime minister of Luxembourg and president of the Euro Group. To me, he is disguising his fear about the potential for another financial crisis if there were a technical default by Greece. A default will trigger credit default swap (CDS) claims. It seems that Juncker is acknowledging the danger in his veiled warnings of "the banks in Germany and Europe, would
have an enormous problem -- with incalculable consequences for the
financial market." and also "we would be letting a genie out of the bottle without knowing in what direction it will be flying." One alternative being discussed and getting traction is not technically a default. It calls for the current debt issuer to offer a voluntary restructuring of their debt with Greece. In other words, the lender says to Greece before you default let's agree on a new debt agreement that keeps you a sovereign nation for a couple more years and prevents a default from igniting a potentially widespread financial crisis. That would accomplish what Greece needs and prevent the world from experiencing another financial crisis in the immediate future.
SPIEGEL: The country's debt burden is so large that even tough
austerity programs and loans are not enough to pull it out of the
crisis. Why don't you finally admit that Greece is broke?
Juncker: Greece is not broke. That is what the experienced
experts with the International Monetary Fund and the European Central
Bank tell us. I am firmly convinced that, in a joint effort, we can lead
Greece out of the crisis.
SPIEGEL: The total debt amounts to almost 160 percent of Greece's
economic output. With such a debt burden, how is the country ever
supposed to make any headway?
Juncker: The United States and Japan also have high debt levels, and yet no one would claim that those countries are bankrupt.
SPIEGEL: But Japan and the United States have their own currencies, which they can devalue, if necessary.
Juncker: That option is not open to Greece -- I'll acknowledge
that. Nevertheless, it doesn't mean that the government is powerless. On
the contrary, Greece can bolster its competitiveness, and it can pursue
a reasonable economic policy and generate more growth.
SPIEGEL: Hope springs eternal.
Juncker: No, I am just considering the alternatives. If Greece
were to declare a national bankruptcy tomorrow, the country would have
no access to the international financial market for years to come, and
its most important creditors, the banks in Germany and Europe, would
have an enormous problem -- with incalculable consequences for the
financial market.
SPIEGEL: But you exaggerate. The European lenders are in a better
position than two years ago, and now many countries have established
their own bailout instruments to protect against bank crashes.
Juncker: I would be cautious in that regard. We are still at the
epicenter of a global crisis. We are dealing with largely irrational
markets, nervous investors and rating agencies whose conclusions don't
always make complete sense. I'll stick to my argument: In the case of a
national bankruptcy with a subsequent debt restructuring, we would be
letting a genie out of the bottle without knowing in which direction it
would be flying.