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Greece is a bit like Lehman Brothers Add to ...

The Economist's Free Exchange blog has a nice roundup of why the debt crisis in Greece matters. Yes, Greece is a small country that represents just 3 per cent of the euro zone's gross domestic product - and therefore any default on the government's bonds would be something close to a non-event in monetary terms.

However, as the Economist's blogger rightly points out, it isn't the relative size of the Greek economy that matters here. After all, Lehman Brothers Holdings Inc. represented a pretty small slice of the financial pie when it failed - and the cascaded impact was certainly not a non-event. As the blogger explains:



"Losses from the Lehman collapse ultimately were far smaller than was originally feared. The real damage was the message the failure sent-that the government might not do everything it could to prevent struggling firms from failing chaotically. This led firms to reevaluate the trustworthiness of other banks (and their obligations) and to rush for safety, and this in turn led to crisis."

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