Greek Tragedy to Premiere Jan. 25

The cradle of Western civilization might fall into chaos in January 2015. Greece will attempt to show the world how democracy works — or, more accurately, if it still can work.

We’re all glad the ancient Greeks invented democracy of course, but it doesn’t always work perfectly. The “democratic“ process can leave a nation in ruins.

Parthenon ruins

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Markets are still in a low-volume holiday mode, but today’s events in Greece sent European stocks down. What happened?

Greece spent the last few years chafing under harsh austerity measures due to its heavy debt load. Creditor nations, especially Germany, demanded Greece cut public spending so it could pay down its debt faster.

The resulting public unhappiness points out one of democracy’s structural flaws. Individual Greeks, who may have voted for the opposition and had nothing to do with running up the national debt, nevertheless have to suffer the consequences. Plato himself probably wouldn’t like this situation.

Not surprisingly, several anti-austerity parties have gained popularity while the country’s traditional leadership class lost ground.

Today, the country’s parliament tried for a third time to elect a president — which is a largely ceremonial office in Greece — but no candidates reached the required supermajority.

Under Greece’s constitution, this means the current parliament dissolves and voters elect a new parliament in a “snap“ election on Jan. 25. Recent opinion polls suggest the left wing, anti-austerity Syriza party could beat the currently-governing New Democracy party.

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The idea of Syriza taking power in Greece strikes fear in the heart of German bankers. The party wants to restore public spending and end most of the austerity measures imposed in the last few years.

Comedy/tragedy masksMore to the point, Syriza leaders think the country’s bondholders should take a Caesar-like “haircut“ and receive only partial principal repayment. The banks and other bondholders don’t like that idea at all.

Nevertheless, if Syriza beats New Democracy in next month’s election and manages to form a governing coalition with smaller parties, Greece could well default on some of its public debt.

Worse — at least from the German perspective — is that a default would likely result in Greece exiting the Eurozone currency union. Traders call this the “Grexit“ scenario. Get ready to see that term in the news more often.

Other debtor nations will almost certainly follow if Greece abandons the euro. Public pressure could force Portugal, Italy, Ireland and Spain to drop the euro, too.

At that point, Germany and France would have little reason to keep the euro alive, so the whole currency union would probably fall apart. This would be a major, world-changing event — and the balls could start rolling just four weeks from now.

It is no exaggeration to say that the fate of the global economy is in the hands of Greek voters. Let’s hope they make the right choice.

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What would be the right choice? I’m not Greek, so in one sense it is none of my business. I expect people there will vote according to their own best interest, just as we do here in the United States.

Generally, I think people (and nations) who borrow money ought to repay it as originally agreed. Then, they can go on to spend their money in other ways.

On the other hand, I think we also have to recognize that unforeseen circumstances can keep debtors from paying as agreed. That’s why we have bankruptcy courts. They sort out the mess and find a fair compromise.

A hardline bondholder could rightly say to Greece, “It’s not our fault you spent the money on boondoggle public works projects. Pay us back in full.“

Likewise, Syriza might say to bondholders, “You knew how we were spending the money and you loaned it to us anyway. Now you should share the pain.“

Both sides have a point. I’m glad I am not in charge of the cleanup. It’s going to be ugly work.

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How do you think Greeks should vote? Will 2015 be the euro’s last stand? I love reading your feedback. You can leave a comment on our website or send me an e-mail.

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The Greek news put a damper on European trading today, but U.S. stocks seemed directionless anyway. Here is a quick headline review.

  • Despite the holidays, we’ll get some key economic data this week. U.S. releases will include consumer confidence, pending home sales, and the ISM manufacturing index.
  • Retailers are cleaning up from the Christmas rush and adding up the numbers. Our spot check of one superstore found the post-Christmas clearance section almost empty by Sunday afternoon.
  • Militants attacked oil facilities in Libya overnight, leaving a large storage facility in flames and cutting the country’s export volume.
  • The attack didn’t seem to help oil prices, though. Both the U.S. WTI contract and Europe’s Brent Crude benchmark fell more than 2% today.
  • Weakness in Dow components Microsoft (MSFT) and International Business Machines (IBM) held the DJIA back today. MSFT also weighed in the Nasdaq Composite, but gains in Gilead Sciences (GILD) helped boost that index ahead of the Dow.
  • Cult burger chain Shake Shack filed its initial public offering forms with the SEC today. Analysts think public investors will value the firm at $1 billion or even more.
  • Ebola reached Scotland. A Glasgow health care worker who had just returned from caring for Ebola patients in West Africa tested positive for the disease and is now in isolation.
  • Another suspected Ebola case in Japan was a false alarm. Health authorities around the globe are still on the lookout as the disease still rages in Africa.

Good Luck and Happy Investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

P.S. I’m releasing my first recommendation for 2015 in just a few days. And I only want people who are ready to make 2015 a banner year to have access. Click here now to make sure you’re on the list!

 

Your thoughts on “Greek Tragedy to Premiere Jan. 25”

  1. What a shame that some people who respond to this article feel it’s all right to drop into the toilet and call you names you don’t deserve. The future of Greece isn’t in your hands or mine, and you’ve always been out front about reporting what’s going on. It always amazes me how some people out there don’t have the manners their parents tried to teach them. Keep doing a good job and ignore those fools. You do good work. And as for Greece, anything we say here is speculation and beyond what we can do anyway.

  2. The one worlders will not let the Euro fail. I thought it would fall apart couple of years ago. I now know better. hd

  3. Democracy is nothing more than ‘MOB RULE’.
    The ‘Arab Spring and Islam in general are wonderful exhibits of it in action. The Greeks have it and it is very evident in New York and Ferguson, Mo.

  4. Is the situation in Greece a precursor to the United States?
    Eventually, yes. In my lifetime … maybe.

  5. Frankly, I do not know how the Greeks will vote in the coming election, but the question I have pertains to the U.S. $.
    If, indeed, Greece bails on the Euro and other European countries follow accordingly, will the U.S. $ index cross the parity point? If so, what will this mean for U.S. exports to Europe? Will an inflated U.S. dollar send the stock market down to lows that it has not seen since 2008 – or worse, just after 9/11/01?

  6. Commenting on Greek situation: I agree this looks bad, but I do not agree that the people of Greece has nothing to do with their current financial meas. And austerity measures in place there are not some reprehensible act of anti-democratic government (was called fascism by someone above me on the blog).

    Greek people: They may well feel like they didn’t “do anything” to help run up the incredible, and unmanageable national debt of Greece – they are wrong. The entire problem with Greece’s finances can be traced to the gov’t spending a lot of money on their people – as many of the European countries do. But in the case of Greece, they have not been able to collect the money they want to spend through taxes. It’s one thing to say, we want a socialist form of government where things like health care, higher education and retirement are “taken care of” by the gov’t. If that’s all that had been going on – you or I may not prefer that, but you can always chalk it up to choices they have made in how to run their nation and live their lives.

    But it’s entirely different when the pressure to spend (on the people, basically) is so great that the gov’t can’t raise the money needed to maintain social programs, and it has to go into debt – BIG DEBT to pay for annual expenses. Big debt, as we all know, comes with big interest payments that add up more and more if more borrowing has to occur to keep up. It’s a losing game from the get go. And it’s not just the Greeks that have been sucked into this now – its’ the citizens of other EU countries, notably Germany and France, whose governments lent Greece the money that now seems like (once again) will not be paid back. I say “once again” because there was a previous “haircut” on Greek debt before, one so massive Standard and Poor’s came out and just called the agreement a default. Now they’re looking to do it again.

    Irresponsible and overspending could have been stopped at any time in Greece. But when any real signs of reducing the “free handout” mentality showed up, the people voted those leaders out of power and installed others who would keep their gravy train flowing. Do that for a while and you and up with foreign debt of 175% of GDP, which is the 3rd highest debt in the world. (from the CIA Factbook: Greece > Economy).

    So the people on the street may feel like they didn’t do anything – but Greece is a democracy and the public dialog of issues that helps drive voting and hence gov’t has not embraced the idea that they should spend only with their means. That has not come back to haunt them, and the rest of the Euro zone as well.

    Fascism comment above: Greece is a democracy, and their gov’t leaders are elected. That’s not what fascism is. And it’s not true that being in favor of national spending that falls within the powers of that gov’t’s ability to pay for it represents some sort of dictatorial repression of the people. The importance of living within ones means is a financial fact of life in call cases and under all forms of gov’t, including in good old capitalism. The problems are that the Greek people have run up one of the greatest piles of gov’t debt in the world and they can’t pay it off. And on top of that their economy has tanked making it even more difficult for the gov’t to obtain money. (and what are the chances that over dependence on gov’t spending was part of the reason for their economic troubles. If they were more free market oriented they’d probably have been better off. But this has been a long time coming and it’s going to be a long time getting fixed.

    And if the Greek people think they are facing austerity now – wait until you see what happens when the money runs out again and they find nobody will lend to them. Then those subsidies of social services will crumble.

    Since they have suffered under the current austerity plan for quite a few years (without really making enough headway so as to be able to see light at the end of the tunnel) it may be that the only way out for Greece is to withdraw from the Euro zone. If they go back to their own national currency they will find that it will be worth so little in exchange for Euro’s that prices of imports will skyrocket, and that alone will curtain spending. In addition the gov’t will be able to print money to distribute – which get everyone paid.

    Of course inflection will spiral upwards when they do that – but it is very likely that a significant deflation of their currency will impose the fiscal controls on the nation that is badly needed and that they don’t seem to be able to find the means of doing otherwise. It will cost them dearly in terms of financial separation from Europe – much like if the US state you live in broke from the US financial system and had its own currency- so you couldn’t buy anything from the state next door at par. But it’s true that the austerity plan has not worked for them since their economy has become such a basket case.

  7. I love ”Uncommon Wisdom Daily”. However, being an objective reader, I am wondering if this article about the demise of the incumbent PM and the ability of Greece to continue the servicing of their EE loans is complete without any reference to the billions of WWII indemnifications the Germans have not yet paid to Greece. I would love also to read
    a few words about the total amount of gold the German Nazis stole from the Bank of Greece and transferred to Germany.

  8. The loan contract should be upheld but if it cannot then you sell any assets and get what you can. If you loan to unworthy borrowers then you must deal with the consequences. Of course in the USA if your the President ( Bush and Obama ) then you bail out your rich defaulting friends (big banks, ins. companies , Wall Street buddies) and make the USA people pay for it with inflation and a larger debt. That is why we have a new budget deal where the people are responsible for the stock gambling or derivatives when they crash. This must be the end of the line for this system.

  9. The fact that You Seem To Be In Favor Of Austerity Measures Is DISGUSTING ! You Right Wing, Paul Ryan, Randroid ASSHOLES! Let’s Call It What It REALLY IS…..FASCISM!

  10. I take issue with your pronouncement that, “I expect people there [Greece] will vote according to their own best interest, just as we do here in the United States.”

    In the U.S., big money has so completely contaminated the political process (with social issues like abortion and guns and gerrymandered legislative districts) that they’ve got people making less than $40K per year voting for Republicans who are so dependent on the Koch / Adelson / et al dole that they’ll toe the line on whatever Citibank and its ilk demand (i.e. the CRomnibus spending bill that breaks the Dodd-Frank Volcker Rule and lets some companies off the hook for some pension responsibilities).

    There is no way electing representatives who do this is “. . . according to their own best interest . . . “.

  11. Brad,

    Your comment about why we have bankruptcy courts is well taken and the austerity forced on Greece by outsiders (ECB, IMF, etc.) was a form reorganization that did not work well. Still, while no one wants to go bankrupt, sometimes it is the right course and many have emerged from bankruptcy to become successful.

    If the Greeks vote for bankruptcy they must realize that it will be a very cold day in July before anyone will be willing to lend them more money. That, of course, might be the solution: unable to borrow from foreigners, the Greek government will have to run a balanced budget or borrow exclusively form its own citizens (bond vigilantes) who, no doubt, will demand fiscal responsibility.

    Bankruptcy would immediately “lighten the load” and replacing the euro with a new devalued drachma might be enough of a boost to allow the Greek economy to return to growth. It would still be a slow and difficult recovery; but that is typically the way the bankrupt recover.

    As you said, all that is an exclusively Greek decision and they should vote however they feel is in their best interest. If they make a mistake and vote themselves into an even bigger mess that is a normal risk of living in a free democracy.

  12. The Greeks should (at least) partially default and send the heads of banks and their directors and the politicians who spent the money and set up failed policies to a number of years in jail. Then they should leave the EU, go back to the drachma and devalue. If they had done that to begin with they would be on the road to recovery now. Think Iceland.

  13. Good heads up article. Take away the printing press in the basement and what did you say the difference is between Greece and the United States?

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