Breaking Up to Possibly Make Up - The Greek Saga Continues

May. 9.11 | About: CurrencyShares Euro (FXE)

Okay, so let me get this straight. After fumbling what was once a great economy and its legacy as the cradle of civilized society, Greece accepted a lifeline from its European neighbors, but still hasn't made the sacrifices needed to get its act together. Still, European nations not only are willing to lend perhaps as much as an extra $43.0 billion to go on top of the $157.0 billion already doled out, but are hesitant to even think Greece wants out of the euro club. That was the scuttlebutt out Friday that derailed a U.S. stock market rally, and it sent markets in a tizzy around the world.

There has been much denial of a piece that appeared in Spiegel, but nobody can deny that the bailout of Greece is thus far a colossal failure. In fact, Ireland needs a reworking of its bailout, too. It gets to the essence of bailouts and why inherently they are often doomed. Getting a bailout means getting a break at variant degrees, which means certain sins go unpunished. Sometimes we are smart enough to say thanks and hope to never report those sins, but at other times the bailout acts like a green light flashing a message to keep doing what you're doing, as there will be no accountability.

I'm not sure if Greece is thinking about ditching the euro or not, but it wouldn't surprise me that the nation is acting like an impetuous child. It's going to get what it wants even if it doesn't get its act together. But there will be strings attached, which begs the question: If the nation can't handle current austerity requirements, how would it handle even tougher restrictions and give-backs? It's a saga that doesn't go away overnight because it took scores of years to evolve. Notions of entitlement have deep, uncompromising roots that water themselves in self-pity and arrogance. Euro powerbrokers understand their awkward position as well.

Leaders from Germany in particular are pushing a well-worn philosophy that says sparing the rod spoils the child. Don't get me wrong: Germany has the most skin in the euro game and desperately wants/needs it to work, but nobody likes to be pushed around. Talk about a different spin on "beggars can't be choosy."

Greece has been reminded if it abandons the euro for its own currency it would be devalued immediately, lifting that nation's deficit to 200% of GDP, which means certain bankruptcy. The stakes keep getting higher, but it is clear Greece needs more cash, and might even bite the hand while it's feeding that cash.
No matter how this is ultimately resolved, the Hellenic Republic's will is in ruin.

No Opting Out

According to Conservative MP Douglas Carwell, the UK has spent more to bail out countries in the euro zone than it has saved through austerity:

Bailouts for the Irish and Portuguese already dwarf all the savings to tackle the deficit over the last year. A Greek bailout on top of that would be astonishingly unfair on British taxpayers and pensioners.

The United Kingdom made the prescient decision not to join the euro even as pressure mounted at the start of the global recession. Still, because of other agreements, Britain is pouring billions into propping economies of neighboring nations that have balked at stiff austerity obligations. Apparently, even though UK Chancellor of the Exchequer George Osbourne has publicly stated his government does not want to be involved in yet another financial bailout of Greece, there is no way out.

So as citizens of the UK make sacrifices to get their house in order, the nation pumps cash into Portugal through the EU and IMF (America is pumping in billions, too). According to The Daily Mail, after the Portuguese bailout, the UK is on the hook for $23.0 billion.

U.S. Economy

The biggest week for economic data left us with more questions than answers. 268,000 in private sector job creation is nice but a year delayed, and maybe not the start of something larger or steadier. That ISM service number and initial jobless claims were really haunting. This week's economic release puts the focus back on inflation, or the lack thereof -- right, Ben? In addition to PPI and CPI, investors get a chance to survey the latest on retail sales and international trade. One of the biggest, if not the biggest problem, for the economy is the lack of credit. Sure, the Fed has worked the printing presses overtime, but all that cash isn't hitting Main Street fast enough.

That could be changing if Friday's update on consumer credit is a sign of things to come:

  • Revolving credit increased to $796.1 billion from $794.2 billion.
  • Non-revolving credit increased to $1.629 trillion from $1.625 trillion.

The $6.0 billion overall increase in consumer credit is ahead of the $5 billion anticipated. It was hopeful news and might have staved off a disaster on Friday, because equities seemed certain to move into negative territory after giving up huge intraday gains.

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Today's Session

Equity futures have been higher all morning, but I don't trust the action. There just isn't any positive catalyst out there, although some folks are sifting through the ashes early this morning, picking up some stocks and silver, and crude oil, straddling $100, is trying to rebound.

US Treasury Secretary Timothy Geithner is meeting with Chinese officials to pressure them to play nice with respect to currency and trade, but the Chinese will counter they are worried about their investments in US debt and dollars because of the reckless policies of borrow and spend. Sure, the Chinese don't mind the "borrow" part, but they can see where all the spending is killing the goose that laid their golden (nest) egg. China will also point out the yuan has rallied against the dollar and stands at an all-time high. The move has been a function of inflation-fighting rather than a sincere effort to do the right thing.

Let's face it: Until we have the guts to call out China on this in the harshest way possible, it's just a game ... one that we are losing.

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