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If you thought that the Eurozone crisis was all about sovereign debt – the money that governments borrow to finance their overspending – then you’re wrong. Obviously, sovereign debt is involved, but only as one part of a much bigger picture.

Writing for Huffington Post, Simon Johnson and Peter Boone open our eyes:

  • "When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors, and about 27 billion euros owed to the IMF…
  • "More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro zone). This includes 110 billion euros provided automatically to Greece through the Target2 payments system – which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail."

So just to be clear: without directly lending so much as a single cent to another government, joining the Eurozone automatically and massively exposes each member state to the consequences of a run on the banks in any other member state.

But, hang on, this isn’t just about Greece, is it? The banking systems of other countries like Spain are also in trouble. So, just how much money are we talking about here? Johnson and Boone have done the sums:

  • "The ECB [European Central Bank] has always vehemently denied that it has taken an excessive amount of risk despite its increasingly relaxed lending policies. But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system."

Cast your mind back to the strange days when this country was still seriously debating membership of the single currency. Now, can you remember any mention of the fact that we might be about to make ourselves directly liable for the stability of the Greek banking system?

One more question: Why haven’t we seen the shamefaced resignation and departure from public life of every single senior politician, economist and journalist who did everything in their power to drag us into this mess?

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