When Does Greece Actually get Scary?

More Greek headlines over the weekend. Sigh. And it’s leading to a repeat of a repeat of a repeat in the financial markets:

This is after negotiations on a new bailout package failed over the weekend and the ECB closed lending lines to Greek banks. In response, the Greek government implemented capital controls and is closing the banks this week to avoid a potential collapse.

Let’s put things in the proper perspective though:

1.  Greece’s IMF loan that they might “default” on is $1.6B.  That’s roughly Wal-Mart’s revenue every 30 hours.
2. Greece is an extremely small economy. Their total output is about the size of Louisiana’s.
3. This isn’t 2010.  The Eurozone is much better prepared to handle a worst case scenario in Europe. The firewalls have been put in place whether it’s swap lines, ESM, QE, LTRO, etc.

So, what’s all the fear about?  I don’t think the real fear is  about Greece. Greece could disappear tomorrow and the global economy wouldn’t even notice (sorry Greece). The real fear is the domino effect. If Greece leaves the Euro then that raises the prospect of a slow and drawn out Euro collapse where multiple countries leave. And that’s when things get really uncertain and potentially scary.  It’s not Greece we’re worried about. It’s Italy, Spain, etc.  But the thing is, this doesn’t actually get scary until that prospect becomes reality. And for now it still looks like a low probability outcome.

Anyhow, there seems to be lots of short-term overreaction to what is actually a rather insignificant global economic development over the weekend. That doesn’t mean the odds of a worst case scenario didn’t just increase, but for now it looks like Greece is just a headline that keeps on giving and not yet a meaningful global economic event.