Every day, there’s another story that says THIS is the event that what will determine if the single currency experiment that is the euro survives: the Greek parliamentary election; the French presidential election; a bailout of Spain’s banking sector; the interest rates on Spain’s 10-year bond; the second parliamentary election in Greece.
Whatever the specific news event, there’s increasingly a tone from analysts and observers that Greece will leave the euro without some sort of major, multi-national, structural change to how the Eurozone works — something that will require concessions by individual Eurozone countries, perhaps even giving up some of their individual sovereignty.
Contemplating what this means for Europe, for the U.S. and the global economy, I find myself thinking about, of all people, Donald Rumsfeld, the former Secretary of Defense.
“There are known knowns; there are things we know we know. We also know, there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don't know.”
This convoluted statement pretty much sums up Europe.
We know if Greece drops the euro or gets kicked out, it will mean further hardship for that nation’s citizens.
We also know there will be ripple effects throughout Europe. But we don’t know the consequences. Will the “Grexit” push Spain and then Italy out of euro? Or will European leaders step and save these countries. In that case, think of Greece as Lehman Brothers (bankrupt) and Spain as AIG (saved!). It’s a known unknown.
And then there are the unknown unknowns. When Lehman went bankrupt, money market mutual funds saw billions in redemptions by investors. That in turn caused a crisis for businesses to find short-term financing for things like payroll at a time when the banking sector was already in a severe crisis.
It’s why, according to BusinessWeek, asset management firms are conducting drills for what happens if Greece leaves the euro.
Joe Carrier, the director of enterprise risk at Legg Mason, told the magazine, “Post-Lehman we realized that things that you would never imagine would catch you, did catch you.”
It’s these unforeseen consequences – the unknown unknowns – that people are desperate to understand.
But we just won’t know until it happens, and that’s the most terrifying.