Recent headlines, which pointed to Greece being the first ‘developed world’ economy to default on a payment to the International Monetary Fund, illustrate why the country’s plight matters. The concern is that it might indicate where other first world economies with large welfare states, huge debts and a dependency on imports might be going: headlong towards a process of deleveraging that becomes contagious. In Europe, this is the case even for signatories of the Stability and Growth Pact, the legal framework established in 1997 as a prelude to introduction of the single currency to ensure fiscal responsibility in the European Union  . For this reason, markets, which seem almost dangerously complacent, may well be right to expect a last-minute fudge on Greece. The risks of a financial accident are rising, however, as the stalemate continues.
Greece’s debt has been unsupportable but it may not be the only economy in such shape. At current growth rates, the debt loads of most western economies (broadly the highest ever seen in peace time) are similarly unsustainable, just less extreme.
Iain Stewart – Newton, a BNY Mellon company
 The pact was intended to limit public debt to 60% of GDP and government deficits to 3% of GDP.