Exactly HOW is the Greek Debt Crisis spreading like a "contagion", as is being widely reported?

1) How does an economic "contagion" function, in detail?





2) What are the "intermediate steps" in the "contagion process"?





It's starting to look to me like no matter what Greece does, it will end up defaulting sooner or later.





3) Wouldn't Germany and France (and all the European countries footing the bailout bill) be better off:





a) FIRST taking EVERY MEASURE POSSIBLE to weather and somehow survive a Greek Debt Default (and all the similar possible defaults by Portugal, Spain, and others)





b) THEN go ahead and let Greece etc default now, instead of throwing BILLIONS of good euros after bad?





5) If the defaults happen like dominoes, will there be another global stock market plunge, and if so, how long to recover from a new plunge?





.|||(1) It isn't a contagion, it's a panic. Contagion is some underlying "contaminating" financial element that unravels spreading financial instability through connected systems. A panic is when the greater financial world fears a problem won't be solved and the resulting default will undermine the financial stability of institutions beyond the boarders of the defaulting entity.





(2) Faith. Trust is the primarily stuff of which the trading process depends -- experts often talk about it "lubricating the system." Without trust (that your partner in an agreement can %26amp; will do what he says), the whole ball of wax can collapse. Aka, the credit crisis of 2008-9.





3a) That really isn't the primarily problem in this case: what does a democracy do when significant numbers of citizen refuse (for different reason) to do what is in the best interest of all? The Greeks are behaving like spoiled little adolescents and the Germans %26amp; French officials are very worried that without Greek humility, they will be unable to fix the problem and remain in power.








3b) a Greek default all by itself would be mostly irrelevant. I think you are overlooking the point that Greece isn't a financially independent country anymore. It is tied to France %26amp; Germany through the EU. A Greek default is also an EU default, a French default %26amp; a German default. It makes the whole ball of wax as weak as its weakest link.