What’s Really At Risk in a Greek Default

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Greek Prime Minister George Papandreou addresses ruling party parliamentary group inside parliament in Athens, Greece, Nov. 3, 2011. (Photo: Marios Lolos / Xinhua / Zumapress)


This is guest post from Swampland contributor and TIME Washington correspondent Massimo Calabresi.

As Greeks decide the fate of Prime Minister George Papandreou around midnight Athens time tonight, it’s good to remind ourselves what our interest in this latest Balkan mess is: credit. Not the numeric version in your monthly credit card statement, nor the alphabetic label Standard and Poor’s attaches to corporations and countries, but rather the intangible social force those numbers and letters are trying to approximate, a force that binds communities, economies and countries together.

The world has already firewalled the collapse of Greece’s credit on the financial level. The end game in Greece is close and clearer now than ever before: either they get it together, politically, and agree as a country to the deal offered by Europe, or they’ll be kicked out of the Euro. The consequences will play out whether or not Papandreou wins his vote of no confidence tonight, as Parliament will have to vote to accept the European package if it’s going to get the money it needs to service debt that comes due in early December.

(MORE: Should Greece Ditch the Euro?)

Even the disorderly default that would follow Greece’s failure to pay its bills in early December, and the Eurozone eviction that would come with it, technically speaking, should be manageable. Companies like Germany’s Commerzbank have been furiously shedding their holdings in Greek debt, and Europe has enough hard cash on hand to keep its credit system functioning, for now. Most of the world is focused on the technical challenge of raising enough money to prevent an Italian default, as President Obama explained during his press conference at the G-20 earlier today.

But managing measurable credit—ensuring that Italy has enough of it, and that Greece’s loss of it doesn’t extend too far abroad—is not the same as managing intangible credit. Greece is on the verge of tearing itself apart. On the one hand, Greeks oppose austerity and don’t want to pay collectively for the sins of their dysfunctional state, even though many in the country bear collective responsibility for the mess, whether through abetting corruption or dodging taxes. On the other hand, Greeks want to stay in Europe. The question is will Greeks reinforce their social contract with each other and begin to rebuild credit in their society, or will they opt for an every man for himself race to the bottom.

(MORE: Why Europe Can’t Solve its Debt Crisis)

What do we care if the Greeks make a bad choice? Unfortunately, irrational Balkan behavior, though technically contained, has affected Europe and the world in the past. What would it mean in the early 21st century to have a country that is nominally part of the stable West, tearing itself apart? Political chaos in Greece shouldn’t technically hurt the effort to raise funds to bolster Italy—but it’s not hard to see how it could. Would social collapse in Greece scare the average German into paying to save Italy, or into cutting Italy loose? Italy’s debt stock is higher than Germany’s. What would Italian default do to confidence here in the U.S. at a time when traders on the Chicago Mercantile Exchange are wondering if for the first time in 160 years private, supposedly segregated, funds have disappeared down the MF Global sinkhole?

In other words, we may have more riding on the Greeks’ ability to believe in each other—their underlying social credit—than the firewalling of their financial credit makes it seem.

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