Will Greece's fall change the current world order?

Default scares are spreading through Europe and current predictions suggest there is little, if anything, that the IMF can do about it. Germany will offer some help, but politically it is limited to what it can offer. Think about this, what do you think Americans would say if they were asked at this point to loan $54 billion to Canada, $120 billion to Mexico, and $475 billion to Argentina? NO WAY!

At this point I'm not sure if Europe has the political capital to supply these three countries with the money necessary to save them. Maybe if the IMF maxed out its contribution the rest of Europe could cover the tab, but even that is not clear. Any organized bailout would probably require a combined effort from Europe, the IMF, the U.S. and at least some of the BRIC (Brazil, Russia, India, China) countries.

Watch to see if Russia and China get into the fray. Both would love to exert greater influence in Europe (particularly as leverage against the U.S.). And what better way to exert influence then to own a portion of Europe.


From Washington's Blog: Greek 2 Year Yields 20 Percent, Italy Up 6 Basis Points, Portugal Up 7 Basis Points, Spain Up 27 Basis Points: "

It's not just Greece and Portugal.
As Simon Johnson reports:

This is not now about Greece (with 2 year yields reported around 20 percent today) or Portugal (up 7 basis points) or even Spain (2 year yields up 27 basis points; wake up please) or even Italy (up 6 basis points). This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.
This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone. It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?

(In related news, Eurozone sovereign credit default swaps widened somewhat Tuesday, but tightened again after the German finance minister said that Germany will rush through a disbursement of funds to Greece.)

Standard & Poor's downgraded Spain's sovereign credit rating today from AA+ to AA, after recently slashing Greece's rating to junk and lowering Portugal's rating two notches from A+ to A-.

David Rosenberg notes:

Portugal’s stock market has traded down to a 12-month low and it’s so bad in Greece that the government has banned short selling for two months. (Hey, it worked in the once-capitalistic U.S.A. didn’t it?) We see in the NYT that Barclay’s analysts believe that Greece needs €90 billion to see them through, €40 billion for Portugal and €350 billion for Spain!That is €480 billion of refinancing help, which dwarfs the latest €45 billion EU-IMF joint aid announcement by a factor of TEN (according to Ken Rogoff, the IMF is maxed out after €200 billion)! Do euros grow on trees as fast as Bernanke-bucks? Would the ECB, modeled after the Bundesbank, ever resort to the printing press for a fiscal bailout? Where exactly is this money going to come from?

***

Yesterday was really as much, if not more, about Portugal than it was about Greece. Contagion risks are spreading as they were amidst the turmoil around Bear Stearns in early 2008 ...

[Spain's] combined fiscal and current deficits are the highest in the industrialized world, save for Iceland (and we know what shape it is in). The amount of debt it has to refinance in the coming year is as large as the entire Greek economy ...

***

If the other two major rating agencies follow S&P’s lead and cuts Greece to “junk”, then the ECB would be in a real bind for it cannot hold below-investment-grade bonds on its balance sheet. If the ECB does accept junk-rated Greek debt as collateral, then the sanctity of its balance sheet will be seriously undermined; though this ostensibly didn’t matter too much to the Fed in the name of saving the system.

It is tempting to assume that this is just a Eurozone problem.

But that might be a very erroneous assumption. See this, this and this.

"