Chiming in on the Greek situation.

One of the interesting things I have learned over the last few days has been how the bailout money was actually used.

Just like in 2008, the bailouts were designed to prevent a broader financial panic involving the banks. Of the 230 billion euros that Greece received, only 11% actually stayed in Greece to finance government activity. The rest was used to pay back old bondholders (mainly Greek and European Banks) and make interest payments.

Instead of defaulting 5 years ago, the Greeks were strong-armed into a bailout designed to prevent panic. Then the crisis spread to other countries, and the EU has muddled through from one crisis to the next for 5 years. After losing 25% of GDP, a chronic unemployment rate above 26% and with debt at 170 debt/GDP ratios, the Greeks are screwed and, more importantly, they have nothing to lose. They either default and possibly leave the Euro, or they stick with the horrible depression they have been in for 5yrs.

The difference is that if they default today, German and Italian banks will not take a hit, BUT if they default (and especially if they leave the Euro), the financial and political ramifications are impossible to predict. It could be the EU's Lehman moment.

I am surprised that the Germans are letting this get so unpleasant. The amount the Greeks want is nothing compared to the strategic importance of Greece as a NATO ally. They must be seriously worried about the signal they would send to Spain and Italy if they agree to let Greece write off some debt. The political environment in Europe is turning against Germany - the real wild-card in this situation are Austerity-weary voters.

Source for the bailout stats (Martin Wolf of the FT)- http://www.ft.com/intl/cms/s/0/44c56806-a556-11e4-ad35-00144feab7de.html#axzz3RNvpcnSg