BackMoral hazard
Greece has moved one step closer to defaulting on its international debt obligations. Indian markets seem unconcerned
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Greece has moved one step closer to defaulting on its international debt obligations. Indian markets seem unconcerned.
One view is that the amount Greece owes is too small to destroy global financial confidence. The Germans seem unnecessarily obdurate, given the emerging narrative about how Greece is fighting a noble battle against financiers who irresponsibly lent it money in the first place.
But allowing the Greeks to get away with not meeting their international obligations may prompt other weak European economies such as Italy, Spain and Portugal to play the same game. Their combined debt is of a scale that can set off a financial panic.
The classic moral hazard problem could then engulf the global economy. However, any such financial shock will force the US Federal Reserve to push proposed rate hikes beyond September.
Maybe that is what local traders are betting on.
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