As an investment advisor, I never thought I’d see the day where a country now mostly known for crumbling ruins, feta cheese, and black olives would take the lead on moving markets. Moment by moment we are subjected to headlines from Europe and most recently, Greece, that dictate daily market movements. Most recently, Greek Prime Minister Papandreou called for a referendum taking the EU’s deal to save Greece to the Greek people for a vote. So in the ultimate example of political selfishness, and with no regard to the future well-being of his own country, Papandreou made an end-run on the agreement he had previously agreed to.
So a country whose best days were 3000 years ago is playing before the world in a Greek Tragedy that Sophocles or Euripides could not even imagine. A country that leads the world in tax evasion (30% of tax revenues lost); a country that pays its government employees on average four times more than private sector jobs do; and a country where governmental bribery is the norm, now holds the world’s markets hostage.
This is not Greece’s first experience with default. In fact, Greece is quite experienced in bond forfeiture. Five times (1826, 1843, 1860 1894 and 1932) Greece has defaulted. In fact, since Greek independence in 1823, Greece has spent approximately 50% of her time bankrupt. For 90 of the 188 years of independence, Greece has been unable to reach solvency and is used to being a global deadbeat.
Unfortunately, this most recent return to red comes at a time when other EU countries are struggling for solvency. Italy, Ireland and Spain all are weakened and Greece’s latest display of fiscal immorality could cause dominoes to fall. All it takes is a few major European banks to face default and the European system freezes as ours did in 2008. While our exposure to European debt is not great, it still will impact U.S. banks and corporations and influence trading and foreign investments.
So what does this all mean? Papandreou’s exercise of brinkmanship will ultimately cost him his job. Greece will probably avoid referendum and agree to the EU plan of fiscal austerity and return where it belongs to its place of global irrelevance.
However, in every situation there is something to learn. If the U.S. soon doesn’t attack our own entitlement issues, we will be faced with our own economic nightmares that will pale in comparison to the recent Greek Tragedy. We will learn from this, but it won’t come without great debate and discomfort.