How a Sovereign Default Plays Out
What happens when Greece defaults. Here are a few things:
– Every bank in Greece will instantly go insolvent.
– The Greek government will nationalise every bank in Greece.
– The Greek government will forbid withdrawals from Greek banks.
– To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.
Have a nice day. Pointer from Tyler Cowen.
I am reminded that Carmen Reinhart uses the term “financial repression” to describe what countries have to do when hit by banking crises and capital flight. I am also reminded that I am supposed to be writing an article for symposium on how a U.S. sovereign debt crisis might play out. These are the sorts of scenarios that one has to consider.