NEW YORK – Despite the series of low-probability, high-impact events that have hit the global economy in 2011, financial markets continued to rise happily until a month or so ago. The year began with rising food, oil, and commodity prices, giving rise to the specter of high inflation. Then massive turmoil erupted in the Middle East, further ratcheting up oil prices. Then came Japan’s terrible earthquake, which severely damaged both its economy and global supply chains. And then Greece, Ireland, and Portugal lost access to credit markets, requiring bailout packages from the International Monetary Fund and the European Union.
But that was not the end of it. Although Greece was bailed out a year ago, Plan A has now clearly failed. Greece will require another official bailout – or a bail-in of private creditors, an option that is fueling heated disagreement among European policymakers.