The Kübler-Ross Model Of Terminal Keynesian Unwind, Or The Five Stages Of An Insolvent Greece
In a piece oddly reminiscent to what our friends at Minyanville put up over a year ago, JP Morgan has just released a short report looking at the "Five Stages of Greece", a reference to to Kübler-Ross model of Denial, Anger, Bargaining, Depression and Acceptance. Unfortunately Minyanville's piece didn't get enough billing because despite being spot on, and absolutely correct in every aspect, the world was literally a year behind the curve to appreciate it. The full article can be found here. In the meantime, here is JPM's summary of where Greece was and where it is heading, based on inferences from clinical psychology when dealing with terminal diseases.
JPM contends that all the recent bailout #2 has done, is to wind the clock back by three steps:
The latest deal for Greece, based on a French proposal, is another chapter in the “Bargaining” stage: it maintains the fiction that Greece’s debts will be repaid at Par, and does little to address the crumbling economic and social situation in Greece, rising deposit outflows out of Greek banks and the possible exhaustion of their eligible collateral to post at the ECB, and collapsing Greek imports and exports. The plan is mostly designed to continue transfers from the EU taxpayers and the IMF to French and German banks, and buy some time (perhaps a year or so).
As for what happens next, JPM's Michael Cembalest has one word: Mexico.
Here’s another timeline of where I think we are in Greece: at the latter stages of the “let’s keep lending more money and
rolling existing exposures and hope it gets better” phase of the Mexican sovereign debt crisis in the 1980’s. I expect the
latest deal to be the last one before the eventual (and inevitable) restructuring of Greek debt.
It is oddly comforting that an individual's steps in dealing with terminal illness and the world's approach in dealing with sovereign insolvency are identical. Alas, everyone knows how both finish in the end.
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