Fear cannot lead to rational decisions.

Germany has rejected Greek request for an extension of its debt out of hand. Greece has a debt of 315 billion Euros which is equal to 175% of its GDP. The European Commission, the European Central Bank and the IMF, known as the Troika, have imposed strict austerity measures on Greece, forcing it to sack public sector workers to reduce government spending and to increase taxes and privatise state assets to increase revenue. The result has been falling living standards, unemployment in excess of 25% and rising suicide rates. Liberal economists think that it is reasonable for Greece to ask for an easing of austerity which has not worked in 5 years and is not going to because the loans given to Greece are going towards paying existing debt, thus increasing its debt burden. Those on the right wing are sympathetic to Germany and think that Greece is completely wrong on every count and should be made to suffer for their sins. But Greece is not alone. The total borrowing of all the countries in the world has risen to $199 trillion, a rise of $57 trillion since the financial crisis began. That is equivalent to $27,777 for every person in the world. China's debt is now 282% of GDP, more than that of the US and Germany combined. As real estate prices fall in China property developers are getting squeezed, and some maybe forced to default on their loans. China has some $4 trillion dollars in reserves and has just pumped $100 billion into banks to encourage lending but that increases the danger of local authorities borrowing more to spend on wasteful projects. As the global growth rate remains subdued and commodity prices keep falling there is a risk of credit downgrade of $260 billion of emerging market debt. Brazil, Russia, Turkey, South Africa and Indonesia are at risk of a credit downgrade while it is probably a matter of time before Venezuela, with the highest oil reserves in the world, defaults on its debt. Argentina is in technical default of its debt to some US funds because of one of those US judges, with delusions of world domination. Household loans in Britain are rising at alarming rates as people bought goods on credit cards. This explosion of borrowing is because central banks of rich countries have kept interest rates at 0%, to stimulate their own economies. This is exactly what happened to Greece where the government and the people were able to borrow cheap Euros, with which to buy German goods which were the same price as in Germany because of the common currency. Our Reserve Bank would be wise to build up reserves in case all the money coming into our stocks and bonds suddenly flow out. Germany may feel that forcing Greece out of the Euro will teach others a lesson at no cost but what if the others stop spending out of fear? Who will Germany sell to?