Following is an extract from an overall opinion I gave on Greece (on 7 February 2010), and a section of this has been quoted in the Macquarie's Equity Research - Guanxi dated 11 February 2010:
Greece is what Dubai was in Nov/Dec 2009. The difference is that Abu Dhabi did come to support Dubai, but who is coming to help out Greece? I have a negative outlook on Greece and think it will trigger an anti EU domino effect. My hypothesis is based on my understanding that strong countries of EU (primarily Germany and probably France) are more interested in Eastern Europe, primarily due to growth opportunities.
The question is: Why should EU or Germany or France lend to Greece to repay debt to IMF, WB or other lenders? When it can fund Eastern Europe, and create market for its exports.
The consequences of default for German banks and others who have lent to Greece can be damaging. However, that is only accounting and stock market loss. For the government, the main issue is job creation and keeping the transaction cycle running. I think any country or government that is looking at profitability as the KPI will surely end up facing election carnage. They need to focus on people issues, jobs, SMEs, innovation, R&D. From German perspectives, all these are not served by bailout of Greece.
The next question becomes: If Greece goes, then what happens to Euro? I am not too positive about Euro also. I am not an expert, but Euro faces significant issues. How can a currency be fixed for distinct economies? Some in shambles, and some in growth. Some having inflation, and some probably in deflation? Some even having religious issues. May be, in my lifetime, I will see the end of Euro in its current form.
Where did it start? Well, I really don’t know. But I can see that easy and cheap credit did play its part.
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Good points. And if the euro weakens and the dollar strengthens on a relative basis, will the hedege funds unwind the dollar carry trade? If so, several asset classes will weaken.
ReplyDeleteYou have raised an interesting question. Unlike Dubai and American banks that operate under a 'single sovereign domicile', Greece is under a 'co-operative' structure within multiple underlying sovereigns. That makes decision making consensus oriented , slow and painful.
ReplyDeleteHowever Europeans know best when it comes to mutual support in a co-operative model and i am sure they will come out stronger 'structurally'.
Check out "Greece Has Spent Half Its Modern Life in Default" http://xpatathens.com/news/21552
ReplyDeleteIt is interesting to see that some of the European countries are serial defaulters. Hence, a default by Greece wouldn't be remarkable. Only that it will be the first since EU and Euro.
Germany Snubs Greek Aid Plea as Protest Snarls Athens Traffic
ReplyDeletehttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=arLVpE91TYVk
.....................“There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.”
Greek Crisis Is Over, Rest of Region Safe, Prodi Says
ReplyDeletehttp://www.bloomberg.com/apps/news?pid=20601010&sid=ap.0YlJlQEMU
It is easy to say that the Europeans (be it Germany or France or the whole EU...) will bail out Greece. In this day of bailouts its inevitable. Whether it solves the problem of incompetent governments and reckless spending who can tell. What i am sure about is that this wont be the last issue of sovereign risk that will be highlighted in the medium term. I am sure that Spain, Portugal, Italy and Ireland are not far behind with the UK and US on their heels. What we should be conscious of is the potential collapse of the European banking system where rubbish loans to Eastern Europe have not been properly accounted for. Who will bail out the crumbling Italian banking system fails? The Italian Government? I dont think so. And I sure the Germans and the French will be the least bit happy being asked to fund a bailout for the Italians.
ReplyDeleteI dont blame the Germans for getting angry for bailing out the Greeks. I wouldn't.
The evitable is that the market will restore some order which will be more powerful than the money grabbing / spending politicians can fight. Lets hope and pray that the fallout is escapable....
http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers&discussionID=14477994&gid=2032881&commentID=13141677&trk=view_disc
The crisis seems closer to its endgame since over the last several weeks it's become more and more clear to the European Union and to the IMF that the neither the Greeks nor the European Union can afford business as usual. Additionally I think, weakening of the euro had both advantages and disadvantages, as the euro's weakness created good export conditions, which is the focus of many EU countries' economies. With a single currency, without a harmonized tax or accounting policies, we must see how long EU can save its 11-year old.
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