Investopedia records that the first default in Greece’s history occurred in the fourth century B.C., when 13 Greek city states borrowed funds from the Temple of Delos. Investors took an 80% loss on their investments when most of the borrowers never paid the money back.
Greece has defaulted on its external sovereign debt obligations at least five times in the modern era (1826, 1843, 1860, 1894 and 1932). The first occurred in the early days of Greece’s war of independence and the last was during the Great Depression in the early 1930’s.
Looking at their most recent default, it is fair to say that many countries defaulted on their debt obligations in the early 1930s. This occurred as the world economy contracted and entered the Great Depression. Greece imposed a moratorium on paying its outstanding foreign debt in 1932. This default actually lasted until 1964, the longest of any of the country’s five defaults.
It would appear that the sixth default for Greece is just a matter of time. A European Financial Stability Fund is in the process of being increased to prepare for and deal with the likely default of Greece. It is likely that the EFSF will be used to prop up the German and French banks most exposed to the E280 billion of Greece debt held outside the country.
As a result financial markets have adjusted the prices of tradeable assets such as shares by 10-20% over the past quarter. The effects have been felt in Australia along with the rest of the globe. However, a lot of the bad news is already priced into markets and if the EFSF is made large enough to deal with the crises then there could be a solid rally leading into 2012.Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.
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