Elections and Debt: Greece is the Word

So far, we’ve avoided any clichéd references to this ongoing Greek tragedy…woops. But this weekend Greece really is the word on everyone’s lips. Not since the dust-ups between the Peloponnesians and the Athenians has the world focused so minutely on events in Greece.

Not that the rest of the world really knew what was going on back in days of the Peloponnesian Wars. But thanks to Thucydides, we got a decent hindsight view. Perhaps his account was one of the first, and only, where history wasn’t written by the victors?

And although maybe not as glorious or barbaric, depending on your view, this weekend’s “>election in Greece is like a blast from the past. The tiny Greek economy, once the centre of the world, is again commanding global attention.

Not for any noble or cultured reasons we might add. This weekend’s decision by the Greek people is really one about whether to default or not. It’s clear that the majority of Greek people want to stay in the Eurozone. It’s whether they want to stay with or without Greek debt that’s the issue.

The leftist Syriza party wants what most left-leaning politicians want – something for nothing. They want to renege on the terms of the bailout, but remain in the Eurozone. While we despise this mentality, we have a soft spot for such an outcome. The bankers and elites would absolutely freak out if Syriza won a majority vote. This outcome alone would stick it to the bankers, who, after all, happily lent money to a country that was clearly in no position to ever pay it back, in the knowledge that someone else would pick up the tab.

Opposing Syriza is the more moderate New Democracy Party, who want to remain in the Eurozone and honor Greece’s debts, with a few modifications. The bankers like this party, and the propaganda is in full flight going into the weekend vote.

On Thursday, Greek stocks surged 10% on rumors (what else gets the market going these days?) that the New Democracy party might have the edge. See what happens when you’re compliant, Greece? Stocks go up. But we should point out that yesterday’s rally is off a very, very low base. Since peaking in October 2007, Greece’s bourse has lost 90% of its value. So much for compliance getting you anywhere…

But as the nation’s equity (and therefore wealth) declines, its debt increases. The graphic below shows Greece’s growing debt profile despite previous writedowns and restructuring. The Greek ‘bailout’ is clearly a failure. That’s because it’s not a Greek bailout, it’s a bank bailout. But we think we’ve pointed that out before…

Greece's Growing Debt Burden

Source: Der Spiegel

And we think the Greek people are smart enough to know the deal. That’s why this weekend’s Greek election is such a major one for investors all around the world. If Greece heads left, you can expect greater volatility, uncertainty and more money printing from the major central banks. If it heads right, then the can rolls down the road for a few more weeks. Either way, it’s ‘good’ for the speculators driving this market.

This headline from Bloomberg says it all:

‘U.S. Stocks Rise on Reports Policy Makers May Take Action

‘Stocks extended gains today amid reports of plans by central banks. Bloomberg News reported that U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit. Reuters said that central banks are prepared to take action if needed to boost liquidity in financial markets if the Greek elections cause tumultuous trading, citing officials linked to the Group of 20 nations.

‘Speculation grew that the Federal Reserve will discuss stimulus efforts at its meeting next week after reports showed jobless claims unexpectedly climbed by 6,000 to 386,000 last week and the cost of living fell by the most in more than three years.’

The global elite are very worried. They’re trying to calm the market ahead of a destabilising political outcome in Greece. ‘Keep calm, everyone…nothing to see here. Continue to buy, we’ll supply the cash.’

While this may appear Greek to you (woops, there’s another one) it needn’t. It’s as clear as a Mediterranean sky in summer. That is, the Greek election doesn’t really matter. Greece is already screwed. This is simply the political/social outcome of years of debt slavery. It’s the natural evolution of a process that began years ago.

The crisis has since moved on. Spain is a few years behind Greece. Bond yields there briefly traded above 7% last night. That’s the market’s way of saying last week’s €100 billion bailout of the banks is all but useless…it’s finger in the dyke stuff. A much bigger bailout awaits Spain.

Italy – whose financial claim to fame is that it sports the world’s third largest government bond market – is perhaps only a few months behind Spain. There isn’t a bailout fund big enough to help Italy out.

Anyway, our point is that Greece doesn’t really matter. It’s past the point of no return. It can choose to die on its feet or live on its knees. Bigger crises loom beyond this weekend. So whoever Greece chooses to administer its fate, and whatever the knee-jerk reaction from the world’s financial markets, it’s irrelevant. Expect deterioration – fast or slow.


Greg Canavan
for Markets and Money

From the Archives…

The Avalanche and the Phase Transition of the Financial System
2012-06-08 – Greg Canavan

A Financial Crisis that Repels Private Capital
2012-06-07 – Eric Fry

Floating Towards Japan’s Economy on a Sea of Bad Debt
2012-06-06 – Bill Bonner

Pirate Politics to Save the European Union
2012-06-05 – Nick Hubble

China’s Economy… Where All is Not As It Seems
2012-06-04 – Greg Canavan

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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3 Comments on "Elections and Debt: Greece is the Word"

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Ned S

“Greece is already screwed”
“Spain is a few years behind Greece”

You forgot France … Then the US!

Oh Asia; Sweet Asia – May your mangoes continue to ripen; While your bamboo grows; And your manufacturers prosper … As the tired old West goes down the poop shute!

Ned S

Like seriously – Have a look at some history – The US in its heyday – A buzzing hive of entrepenuerial activity. Now a bloated banker and consumer becalmed wasteland of debt … cf Asia … And weep!


European debt crisis seems unstoppable. After several years of crisis in Greece, moved to Portugal and last week to Spain. Now markets are looking Italy.
This move was expected for years, since the birth of the European Union (without a banking and tax union for all member countries)
To overcome the current crisis of debt, all the member countries must unite and fight for this only target, leaving personal interests of each country.
I leave a link with the actual situation of Italian banks and their exposure to the economies of Eastern Europe (in charts).

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