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Commentary

You Might Not Believe It, But It is Greece Time Again!

Greece is back! We won’t bore you with the details but it seems there’s doing crisis level meetings (again) on the fact that Greece needs money, and it needs money to pay people it owes money, and they want Greece to die of starvation rather than not paying them, which is not acceptable to Greece, and so on.

So David Einhorn supposedly created this awesome graphic:

image

If you want a “You are here” marker, imagine a red dot running round and round this little circle. Currently it’s at the point where “Solution has no substance or won’t work”.

The best thing for Greece is to walk away from the Eurozone, but politically they have be thrown out as if it was the last option, otherwise the blame will be on Syriza. They now have enough support at home to ditch a deal that involves even a teeny weeny bit more austerity.

For the Eurozone there’s a big problem if Greece walks, because it is guaranteed to look good if it does. Because the economy will tank for a couple months, but come back very very strong in a year or two, and the Drachma will devalue substantially against the Euro, making it profitable for their exports. Even if the Eurozone agrees to take a hit on the debt it is owed by Greece (who won’t pay back, of course, that’s the whole point), the issue is that Greece then becomes an example.

An example of Iceland has already been there. They had a huge problem and refused to bail out their banks. After three years of currency barriers, they are now back and back so strong it makes the bailout countries look really bad in comparison. If Greece does the same thing, the next thing you know, Portugal, Ireland and Spain will demand that they too be allowed to default. When you’re in a hole with no way out, you might as well just dig deeper, especially if you know that others who did so managed to get out.

It’s getting that point. Germany says “No Deal”, it seems, with the Finance Ministry spokesperson Martin Jaeger telling reporters there’s a long way to go. Greece has apparently rejected the terms of the creditors that would let Greece get more money as aid so it could repay the IMF. These terms involve higher VAT, higher income tax, increase in the retirement age to as much as 67 in 7 years, and lower defence expenditure. This would most likely kill the Greece economy even more.

Earlier today, market participants got a whiff of it, just before the markets closed for the day:

image

Oh, that volatility, it’s here again. Tomorrow’s expiry day. I hope you haven’t written too many options.

  • nitin says:

    Please proofread the article before you hit publish. Otherwise it was an awesome read. 🙂

    • Not sure what was wrong with it 🙂

      • kumar says:

        your articles are generally written as if you are speaking to someone. the first paragraph of this article is evidence of that.
        you are so full of ideas that the second idea often wants to come out partway before you are done with the first one. 🙂
        nitpickers will always nitpick, don’t mind them. unless you want to employ an english major, to correct your dangling participles.

        • Oh yeah, no english majors for me. I gave up on English nazism a long time ago – now, unless it’s a spelling mistake of glaring proportions, I don’t bother 🙂
          I need to get my ideas in a proper row, I agree…

  • Greece were ineligible to join the Euro, they fudged their books and joined. This came to light a few years later and since then we are having this periodic circus. Europe should have thrown them out that time itself. But now we have a situation where Europe needs Greece more than the other way round since their money is stuck. There are very important lessons in LENDING for all of us in this!

    • sandrasegaran karupaiah says:

      Greece is not the only EURO country to fudge their books. Probably Germany is the only country satisfying all criteria laid down in the EMU. Greed and haste are the foundations on which the EURO has been built. Without a political union this experiment will end badly.

      • Vineet says:

        In this case a little bit of history lesson is good. The European integration project is very old. People and powers have been trying to unite Europe for centuries but none of those attempts have succeeded. The current Euro project will fail as well.