The Greek Debacle: Severe Symptoms of a General Disease

Includes: EEA, FXB, FXE, FXF, FXS
by: Forex Traders

Greece is obviously run like a multinational bank. Sweep as much as you can under the carpets, fit in with the crowd, and put on a smiling face. Masking a deficit in the ballpark of 13-14% would certainly be a remarkable achievement for Madoff himself, but apart from the shock value of a national fraud, is there really that much to distinguish Greece from some of its more fortunate peers in Southern Europe? What is the distance between Spain, Portugal, or Italy, and Greece or even the U.K. in terms of economic incompetence, and monetary indiscipline?

From an economic point of view, letting Greece quit the eurozone is the easiest and cleanest solution to the debt crisis. Not only would it give a strong warning about the need for fiscal discipline to potential culprits in future crises, but it would also avoid the severe consequences of bailout in terms of political stability, and electoral contentment any disruption to which will easily threaten the already tenuous and doubtful economic recovery underway. It is not even clear if eurozone nations possess the power to bailout the entire group of nations that are dependent on the goodwill of international speculators to survive the next few years. We are not only speaking about the southern members of the eurozone here, but also about the total mess that lies to the east of the monetary union at places like Hungary, Ukraine, or Romania, where the fiscal situation is hardly any marginally better than in Spain or Greece. Italian, and German banks are heavily exposed to the Balkans and the nations of the former Soviet Union, where the previous bailouts of the 2008 have only delayed the resolution of severe issues.

But the political problems involved make the attractive option of kicking out Greece an impossibility. One cannot build trust and a sense of companionship between the members of the Union by discarding them at the first sign of trouble of the first crisis that the Union has to face by itself. If we recall that the European Union has its origins in the days of Winston Churchill and Konrad Adenauer, it becomes clear that the EU cannot discard the efforts of decades and generations just because of a quick calculation about the possible costs and profits of a bailout. It may be a run up the hill, and there is every chance that it will prove to be an impossible battle in the end, but they won`t give up just yet.

The Greek issue will probably be sorted out before the deadline for a default arrives. It is simply unthinkable that eurozone nations will let confidence crumble apart at the first significant crisis in the history of the single currency. But let`s not keep our vision narrow by focusing on the immediate problems of the E.U. Greece is only suffering from a particularly severe case of a general economic malaise that is afflicting the majority of economies in the developing world. Indeed, both the U.K. and the U.S. have deficits above 10 percent of GDP at the moment, and many nations all over the world are way above the 5 percent limit. Seen in this context, Greece is only a spectacular case in terms of the emotional intensity of the story. We are sure to see many more crises of this type throughout the next five years – putting problems from one pocket to the other. Handing them from corporations to governments to be solved is not an effective measure. And that is the theme of the next five years, along with unemployment, volatility, and political chaos.

Disclosure: No positions