Are We Ignoring Greece ?

I have been reading many reports, buttressed by personal testimonies, of a major bank run going on in Greece -- domestic banks and even foreign banks domiciled in Greece.

It seems to me that this development increases the likelihood that the crisis has reached a terminal stage.

The loss of funding of banks causes them not only to deny credit but to have to retract/eliminate credit lines. The resulting spike in internal interest rates and monetary astringency can cause a swift collapse in economic activity, which will make it completely impossible for the government to meet its revenue collection targets.

Massive external intervention is now required to salvage the situation. First, the ECB must provide unlimited funding to replace the withdrawn deposits. Second, the EU must provide the necessary loans/guarantees, with a comfortable margin for shortfalls in revenues.

If this doesn't happen very quickly, a severe Greek crisis will be irreversible. The situation may drag on for a while. For example, EU countries may announce loans/guarantees at any moment. But each day that passes, the final outcome is increasingly irreversible.

Again, the key is that the collapse in internal economic activity, if not reversed dramatically and immediately, will make it impossible to meet revenue collection targets.

It is my opinion that financial markets have become complacent about the Greek issue. Most today are saying, “who cares.” This is a mistake.

If Greece goes down, this is a big deal. It'll be Financial Crisis 2.0!