http://www.bbc.co.uk/news/business-13838819
Greece crisis: Not Europe's Lehman (it could be worse)
Eurozone finance ministers' overnight decision to withhold payment of 12bn euros (£10bn) of emergency loans to Greece, pending agreement by the Greek parliament on austerity measures and privatisations, would be rational and credible on the basis that Greece has more to lose from a disorderly Greek default than the eurozone itself.
Or to put it another way, threats are only worth making if those making the threats could actually carry them out.
But if, as is not impossible, the Greek prime minister George Papandreou - under extreme pressure from popular and parliamentary opposition - were unable in the coming few days to win backing for his reshaped cabinet and the deficit reduction programme demanded by Germany, France and the rest, would other eurozone governments sit idly by as Greece told its creditors they couldn't have their money back?
The point is that such an event would have potentially catastrophic consequences for holders not only of 340bn euros (£300bn) of Greek sovereign debt, but also for holders of hundreds of billions of euros of Greek commercial debt and tens of billions of euros of derivative contracts linked to Greek debts.
At a stroke, such a default would also increase the perceived risk of lending to Ireland and Portugal, triggering vast additional losses on hundreds of billions of euros of loans to those states and their respective banks.
And with the jury out about the long term sustainability of Spanish and Italian debts, the governments of those countries would find themselves having to pay a painful bigger premium over what Germany pays to borrow.
In itself, such an event of default would blow up the balance sheets of banks all over Europe: the banks in Greece, Portugal and Ireland itself could survive (probably) only as nationalised entities; and some banks in France, Germany and even the US would suffer losses that would take their capital resources to dangerously low levels.
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