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More confusion from Greece

This is starting to get absurd. According to a news report, Athens Mayor Nikitas Kaklamanis made a statement asking Germany to pay reparations for the Nazi occupation of Greece during World War II. I am an economist and not a diplomat, but this doesn’t seem like the best course of action when your country is desperate for an EU bailout. In my view, the likelihood of a Greek default has increased over this past week.

The article also mentioned Parliament Speaker Filippos Petsalnikos responding to harsh editorials in German media about a possible bailout:

Petsalnikos accused Stern of offering an “oversimplified and populist take” on Greece’s financial crisis by lambasting Greeks for frittering away German taxpayers’ savings. In a letter sent to the magazine, Petsalnikos argued that Germany too had reaped benefits from European Union membership, stressing also that it was Greece’s main arms supplier. He noted that Germany was one of the countries that benefited most from EU membership, with more than 60 percent of its exports going to member states in 2007.

Sorry, what? Of course Germany benefited from EU membership, but that is entirely irrelevant. Greek military purchases from Germany barely move the needle on German GDP.

In my view though, an even bigger sign of dysfunction is the front page of Greek newspaper Kathimerini English Edition posting this message today:

TO OUR READERS
Kathimerini English Edition and the International Herald Tribune will not be published in Greece and Cyprus tomorrow because of the participation of the ESIEA journalist’s union in the 24-hour general strike today. We will be back on Friday.

This was the very same newspaper that on February 19th put out a strongly-worded editorial against union bosses abusing their power, saying “It is time that those union bosses who believe there is no limit when pushing for demands became aware of the harm they are doing to the country and, in the long term, to their own sectors.”

While one newspaper is not an adequate sample of all Greek businesses and institutions, it does put to question that, if a newspaper who has taken a stand against aggressive union action cannot control its own staffers, can the national government–who must deal with the unions in elections–gather the political will to pass austerity programs?

Greece still has a chance to pull through–if the country is willing to endure the painful medicine to avoid a default. One Greek columnist succinctly wrote that “German Chancellor Angela Merkel will not shake with fear at the letter by Parliament President Filippos Petsalnikos nor will BMW’s stock fall because some are thinking about boycotting German products.”

More rational and level-headed thinking like this is needed. It is said that a crisis can bring out both the best and the worst in people. In Greece, markets have unfortunately only seen much of the worst.

Conclusion

I maintain my views on how to protect investments from a Greek crisis. European sovereign debt and Greek equities should be avoided, and could also present potential short-sell opportunities. I would also continue to avoid the Euro. While I think that concern over a dissolution of the Euro is premature, a crisis in Greece (and Spain, Portugal, and Italy) will keep the Euro depressed.

-Alex Cook



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