First, I think Europe needs to take action to allow peripheral countries an orderly default. The longer the global community waits the greater the risk. My understanding of an orderly default is basically an agreed upon haircut. Banks holding Greek debt agree to write the value down and Greece agrees to pay the new payments on the new debt levels. Though a 50pc haircut seems drastic think about the options of more austerity.
Populations like Greece at some point will rebel against further austerity. Political unrest in Europe is the worst case scenario. Unrest will likely lead to a populist call for a disorderly default. The contagion of such action is completely unpredictable and likely to be more catastrophic than Lehman.
Why is this important? 1. Good policy and orderly cooperative action can avoid total catastrophe. It is vital to realize that while a natural catastrophe like a Tsunami cannot be avoided Financial Tsunamis can be avoided. The math can be done to make a balanced bailout and haircut options that equally effects banks and public services but protects all of us from wholesale disaster. As Christians, we ought to call for balanced sacrifice and wise solutions to avoid undue suffering. This is the compassionate and wise thing to do. 2. Human nature and the realities of life can cause suffering people to do horrible things. Poverty and economic collapse can lead to political instability. These things have happened before and it is unwise to believe that the 21st century is any different than the 20th.