1)Greece’s bankruptcy not only means that Greek government securities’ holders do not get back their money invested. Also means that most constituents of the state operation (the local governments, plus all transportation/ water/ electric utilities, most companies and private persons) will not be able to meet their debts and obligations.
From that moment NOT only Greek teachers, doctors, police, army, ministry and local government employees will NOT receive a salary, just as the seniors do NOT expect retirement checks in time, if at all. The ATMs are emptied in minutes. The local banks are stuck holding government securities, generating an immediate liquidity crisis, devalue the Greek banking system, into total collapse. Thus the savings of depositors is totally lost, because the Greek government deposit insurance or guarantee becames worthless.
Bankcards become trash. Nobody will be able to withdraw some money. And can not pay in shops.The gas station will run out of fuel, as well as food from the grocery store. The doctors will strike and not work. People die.
Greece is practically at full stop. For at least a decade. Dramatic drop into poverty stands ahead in the whole country.
2)The problem for Europe is that in this case, the disaster might not stop at the Greek border, but will penetrate with great speed and momentum into the entire euro zone. Europe faces a scale 10 financial earthquake. The channels for the spread of infection, of course, are very fast. Such a scenario would fast paralise the banking system. Indeed, the international banks, which invested money in Greece, will suffer hundreds of billions of euros of capital loss. They will soon be forced to lock the credit lines toward other banks, which will have to do the same against other banks.....panicking all banks, private investors, depositors all over Europe.
And when the banks no longer trust each other, they do not lend to each other. The international financial markets freezes. This in turn means that all financial institutions close down for clients.
Poor countries with weak banks start usually to panic, and withdraw retail funds. But since the retail and corporate deposits and loans are allocated and shared in the form of inter-bank market, these banks can not borrow bridging withdrawals, spawning an immediate liquidity crisis. This spreads to all financial institutions, they must by law be put themselfs into bankruptcy.
European countries, of course, guarantee the safety of their deposits, but the collapse of the banking system would create as big and widespread financial stress, that the governments of the countries whose banking systems is in collapse, must start to save THEIR OWN banks. ABANDON all COOPERATION. Thus, the escalating self-fulfilling panic speads through all Europe, the euro zone crisis then leads to complete DISINTEGRATION.
Of course, Angela Merkel, Nicolas Sarkozy and Jose Manuel Barroso repeated daily that they want to prevent disintegration of the euro zone. There is no question that if the Euro zone falls apart in this process, an alternative to build from scratch would be a huge cost to all Member States.
But the currency union dissolution is probably not will be managed from Brussels. It will not be an orderly process, but an uninvited guest breaking all doors as a result of financial apocalypse. The euro area break-up will cost in human factors as well as in money and capital market huge LOSS. It will force new trends, will define the politics for the next 15 years all over the world.
While the rest of the developed world cannot step on the toes of the EU, they can help indirectly and behind closed doors.
Then you have each euro nation's central bank putting pressure on its own banks to accept the current haircut terms. Sure Finland is dragging some feet, but every time push comes to shove and a vote must be taken on a political level no one wants to be the cause of a meltdown and the plan always passes. Nor does anyone want the fallout from a meltdown. Sure you can make a million bucks when it all hits the fan, but once the domino's all start to fall it will hurt you too in every other possible way.
Now we have changes to VAT receipts, we have tax evasion money coming back in from pay checks. We have so far half of the EU nations passing the latest bail out package arrangement. They are finally getting this thing bottled up. Real momentum is forming internal and external.
And your right, selling now would only be based on emotion. It would also be a vote for failure. The bank has obligations to its investors but by investing you also have also created an obligation to the bank. Your investment gets used for one thing or another, pulling that does have repercussions. This was all risky when you set out with that first buy order but you should have weighed it then and many of those reasons are still valid, your just beginning to loose sight of them in the noise of negative news selling more papers.
As an investor I know I have the backing of every world government, every central bank, and and by a number of sizable investors also looking and waiting to make a profit on the way out. The only real question I have is how long does it take and how long should I wait?
I do have to say, the part about civil unrest leading to a default is an awfully huge dotted line your drawing. I understand anything can happen, but I still have less faith in that than people getting their act together and moving forward with what is placed before them to work with.
Wow!I asked for facts but did not expect your input.First, thanks for your very informative and thoughtful post.I have no way to evaluate the validity and reliability of the data that you provide,but your thoroughness and conclusions reveal an informative and mature individual who is certain of his facts before speaking. It appears to me that you are envisioning two possible alternatives to the social structure of Greece (and Europe possibly the world in general)on one hand and the future of NBG on the other.The first is an Armageddon scenario leading to,as you pointed out to significant decrease in quality of and loss of life.This is a topic much too complex to address on this board.I will say ,however,that in my opinion it has a fair chance of becoming reality even if our policy makers find a way for a soft landing of decades old credit cycle.At the same time I would like to disagree with your doomsday scenario for Greece.If indeed Greece cannot fund its domestic obligations it will be forced ,whether with or without EU consent, to return to its previous monetary unit,the drachma.Will this entail hardship and quality of life hit? absolutely.More so than currently experienced ? I wonder.If Greece can solve its tax evasion and downsizing of its public sector problems it has the means to become a prosperous Florida of the EU --Outstanding climate,hospitable citizens, intelligent and hardworking people (yes hard working ,most in private setting work 10 to 12 hours a day),self sufficiency in food are some pluses. I did not mean to digress so much from the main focus of this board-the prospects for NBG.It appears to me that the details provided in your post confirms to me that the risks rewards equation for the PPS of NBG in the 1 to 3 time frame is very positive.Even in your most pessimistic scenario there will always be a need for a bank and NBG is one of the two or three best,if not the most sound Greek bank. Again thanks for your input