A Day in the Euro System’s Breakdown Crisis

For all those financial institutions which had “discounted” the euro crisis of unpayable “Greek debt,” June 29 started with stock market plunges in Asia and got steadily worse, ending with a dramatic nighttime rally of 25,000 in Athens’ Syntagma Square in support of the Syriza government’s stand.

Although massive interventions all day by the Swiss Central Bank stopped an incipient collapse of the euro, the London and Wall Street sighs of relief were premature. Stock and bond markets resumed their slide, with European stock markets down nearly 4% and most big bank stocks down 8-10% or not trading at all. Some big banks, like Goldman Sachs, and many hedge funds headed by the likes of Wilbur Ross and John Paulson, had recently gone into long bets on Greek debt, confidently expecting Greek capitulation to the “European institutions” and another bailout. These, too, lost big. Ross, in an angry interview on CNBC-TV, threatened, “Greece faces social chaos. I don’t see how Mr. Tsipras and the Syriza party survive this.”

At the same time, Puerto Rico Gov. Alejandro Garcia Padilla said June 28 its $72 billion “debts are not payable,” indicating defaults and cross-defaults to come during July. Thus the municipal bond markets, on which Puerto Rico debt is widely held, were also hit.

Late in the afternoon in Europe, Greece’s government announced that it would default on payment to the IMF June 30. IMF Managing Director Christine Lagarde has recently said that in this event, she will officially notify the IMF board “immediately” that Greece is in default, though Lagarde is not famous for consistency and truth-telling.

Greek Prime Minister Alexis Tsipras, whose Twitter feeds emphasized that he was quoting President Franklin Roosevelt when announcing the bank holiday Sunday night, gave another interview yesterday afternoon, telling Greeks that backing the “Oxi” (“No”) to the institutions’ ultimatum will “put another weapon in our hands.” He said that Greek policy was not to exit from the Eurozone, that the government was ready for new negotiations for a reasonable plan including debt relief, and that the Greek banks will reopen once the European Central Bank restores the liquidity which it has cut off to them.