Worldwide Crisis Or Slow News Week – It’s Not All Greek To Me

I was keeping an eye on Google News; not too keenly mind you. It was a great day here in St. Louis as we wound down from the July 4th events. And later, we focused on the World Cup final. But, at the edge of consciousness was the Greek referendum on the European Debt Relief offer.

Early reports suggested a narrow victory for the “No” vote. But like the U.S. surge in the first 16 minutes against Japan, the news media, like the Japanese team, appeared unprepared for the overwhelming rejection of the concept of fulfilling the debt obligations of the country.

I admit I was not shocked; in fact, I was not really surprised at all. Given what I assume to be the informed nature of any voting general population when the question, “Do you wish to have your benefits cut” is put to voters, I can expect no other outcome.

We’ve seen governments exhibit this type of behavior up close before. The Argentine government has consistently stated over the past few years that “the people” come first, ahead of debt obligations. Monday’s New York Times carried an editorial that essentially said, like the mortgage difficulties in the mid-2000s, it’s the lender’s fault that Greece overspent and borrowed too much.1 Sigh.

Greece has also taken this stance, declining to cut some of the most generous pensions and benefits in the western world, and opting against taking other measures that might assure the repayment of the obligations run up over the years by the Greek government.

As a reminder, to enter the European Union and the euro, former European Central Bank Chief Economist Otmar Issing noted in 2011, “Greece cheated to get in, and it’s difficult to know how we should deal with cheaters…”2 While this was not uncommon in 2000 and 2001 – Italy, Spain and Portugal were all accused of doing the same thing – Greece admitted in 2004 that it had been publishing false economic figures and that its finances were in considerably worse shape than had been known before.3

Individuals like us would have been sent up the river for this offense, but Greece received over $260 billion in emergency financing from a variety of players, including the International Monetary Fund (IMF), the European Central Bank, and the European Commission. It is a portion of these bailout funds that have now been judged to be “in arrears.”

But, now it’s Monday (writing day for the Sunday edition of the Daily Pfennig® newsletter) and the default remains in place. Greek banks remain closed and the Greek economy is on red alert. The well-documented breakdown in daily life due to the restrictions on cash has been a hot topic in the press. Greece may well continue to hold its hard line on repayment versus the perceived happiness of its pensioners, which could easily result in their exit from the euro, and possibly the European Union.

Checking in with the market reveals, well, not really all that much change from Friday. Apparently, this wasn’t a huge surprise there either.

Changing Channels… Scanning all of my media outlets turns up little in secondary news. Next on the list is the fall of the stock markets in China, followed by the Ben Affleck/Jennifer Garner split. I think to myself, “Is mid-summer just another way to make a small crisis look massive, or is it the real deal?”

We do admit to a prejudice that considers the veritable butterfly wings in Asia or Europe ready to unleash hurricanes and tornados in North America. We’ve worried consistently about high governmental debt levels and the possibility that one smaller spark can touch off the forest fire of crisis. And maybe it will. If this occurs now, I’d be more of a bettor on something in China, but, of course, Greece may just do the trick.

But at the core, we are optimists. Will this small country ruin Europe? I don’t think so – unless the union just refuses to let it go. Will Greece ever pay back its debt? Again, I don’t think so. There just isn’t enough national revenue to pay for the excesses of the past. Will Greece exit the euro? I hope so, both for the sake of the common currency and, after much pain and suffering, the Greek economy.

We’ll be watching and waiting this week to see where it all goes. Join us daily at the for your updates.

Onward and upward.

Until the next Daily Pfennig® edition…

Sincerely, Frank Trotter
EVP & Chairman EverBank Global Markets Group