A Greasy Mess In Greece

Fri, 2015-07-10 11:08

Here is our view of the developing situation in Greece as of Tuesday, July 7th.

At this point in time we do not see the need to make any changes to your investments because of the financial troubles in Greece. 

Sunday is the deadline for Greece to reach an agreement with the EU (European Union) or they will continue their slide towards bankruptcy. 

We have been monitoring these developments since 2008. These countries were in financial trouble because of years and years of massive government spending of more money than their countries had. During that period, Greece and 4 other countries were headed down the path towards bankruptcy. 

WILL THE EUROZONE BE HURT IF GREECE LEAVES THE EU?
We believe the end result financially for the EU will be pretty much the same no matter what Greece decides to do. The Greeks will probably never be able to repay the majority of the money the EU loaned to them.

If Greece leaves the EU, then the EU has lost all of the money they have loaned to Greece.

If Greece wants to stay in the EU, they will need ANOTHER loan and the EU will not be any closer to getting repaid on their old loans.

The EU knows Greece is broke and probably cannot ever repay the majority of their debt. The reality is it makes little difference financially to the EU members. 

The EU knows that the majority of Greeks (61%) just voted and said NO to staying in the EU, NO to reduced government spending and other austerity measures requested by the EU.

WHAT CHOICE DOES GREECE HAVE?

While the outcome for the EU will be manageable, the same cannot be said for the people of Greece. Their lives will change.

Staying in the EU will result in sacrifice, getting by with less for the majority of the Greek people.

At this point in time it looks like the majority of Greeks are in favor of leaving the EU. We fear that the Greeks do not understand the consequences of this decision. The financial downside for the majority of citizens may result in a modern day Greek tragedy.

If Greece leaves the EU there is the potential for any and all of the following problems: double digit inflation, food, medicine and gasoline shortages, riots, political risk,  and reduced tourism just to mention some of the potential risks.

THIS IS NOT A SURPRISE TO THE FINANCIAL COMMUNITY

None of this is new or a surprise. In 2000, the financial community created a nickname for the 5 financially weakest members of the new Eurozone. P.I.I.G.S. Yep, it's pronounced just like it looks. The nickname stands for Portugal, Italy, Ireland, Greece and Spain.

In 2010, the European Union created a bailout for these countries contingent upon each country reducing their government spending, make cuts in government programs and raise taxes. In short they asked them to not spend more than they make. 

In 2012, Greece was broke again. They had not changed their ways and were even deeper in debt. In exchange for help/bailout from the EU the Greeks promised to cut government pensions (similar to our Social Security program), reduce government spending and raise taxes. 

The country of Greece is on the verge of bankruptcy for the third time since 2008

If you had loaned money twice to Greece and were never repaid, would you loan them money again? I doubt it.

On the world scale, Greece is a very small country. And their financial problems are a small problem for the world even if they make big headlines for the media.

                              

Opinions expressed are those of the author and are not necessarily those of Raymond James. Currency exchange rates fluctuate daily and may effect the accuracy of the information provided above. All opinions are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

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