Newswise — Robert C. Hockett, professor, Cornell University Law School, is an expert on financial law and economic globalization.
He says:
“The current Greek debt crisis looks to be a classic case of potential 'contagion' in global financial markets. Nations such as Greece, where tax collection has been historically lax, find it all the more challenging to pay down their debts on schedule. Things can turn more ominous, however, when speculators in the financial markets begin betting en masse against a country like Greece, for in these cases the fears of some investors can become self-fulfilling prophecies. It's a bit like the bank run scene in the Jimmy Stewart film, It's a Wonderful Life, all over again.
“In cases like these, the IMF and government officials endeavor to act as the FDIC, Fed and Treasury do here in the U.S. when banks are in trouble. The challenge is more poignant in these cases, because nations are not insured and regulated as banks have been since the Jimmy Stewart era. It is the 'regulatory authority' itself -- the nation -- that is in trouble in these cases. How the EU and the IMF handle this case will both determine the long term future of the Euro and, perhaps, the shorter term future of other nations' debt instruments in the global financial markets.”
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