Greece – Moral Hazard

June 30, 2015

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Greece has set the new high price of “moral hazard.” Emergency liquidity assistance (ELA) from the European Central Bank now is estimated to exceed €100 billion. It continues to rise.

The population of Greece is approximately 11 million people. Their composition, including gender and age, is shown on In order to determine the cost of moral hazard for each Greek citizen, take €110 billion (current ELA estimate) and divide it by 11 million (current population). This is the outright drain of liquidity on the Greek banking system that is now supported by the other Eurozone member countries. Every day the balance is rising. It is rising because the entire Greek banking system will collapse without ELA.

The cutting edge of moral hazard is the collapse of a banking system. That is the point in time when citizens no longer trust their institutions or government, take their money out of the bank and go somewhere else for safety. That is the point of financial collapse.

History shows that decisions in those circumstances are driven by emotions rather than rational calculations. For those seeking safety, it becomes every citizen or business owner for themselves.

In Greece, that is now happening as Greece’s debt has reached 180 percent of its GDP and its population is in the process of a five-year recession and a systemic collapse.

It looks as though the can will be kicked again. No politician in any country wants to face the result of dysfunctional behavior and failed leadership over several years. Hard choices get forced on them at the point of collapse.

The process that leads to this is called “moral hazard.” Moral describes political structure and leadership that function without morals. Hazard is the collapse that comes when the circularity we have discussed ceases and the confrontation with reality takes over.


The ideas and opinions expressed in this blog are those of the author, and they should not be perceived as investment advice or as any other kind of advice.

The preceding is a commentary by Cumberland Advisors and has been reposted with permission. Cumberland Advisors commentaries are available at

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