The Greece Trap

The stench that is now spewing out of Greece has been building for some time. In fact, anyone with a nose for basic economics could smell this rancid mess brewing some years back. It’s now enough to make a grown man gag.

Welcome to the Greece Trap!

I know I said I wouldn’t be back until the end of July but I’ve had a few people contact me recently concerned about what’s happening in Greece. Callers have had two main concerns: What does it all mean and is it worth worrying about?

So I thought I would drop you a line about what I think you need to understand.

Also, I’m not on holidays. I’m just giving my two fingers (and one thumb) a rest for a month. So please feel free to call if you would like to discuss anything.

The Build-Up of Greece
For the past 30 years Greece has been borrowing (and spending) money like there is no tomorrow. They are now out of cash and can’t even repay the interest on their loans. No one will lend them a cent and the maximum depositors can withdraw from their bank accounts is sixty euro’s (dollars) a day. They’re buggered.

Greece is also a member of the European Union (EU). The EU is a politico-economic union made up of 28 member states, mostly domiciled in Europe. It isn’t a government, an association or an international organisation. It’s just a union. Its currency is the Euro Dollar (ED).

In the eyes of the EU, Greece is a case of be close to your friends but even closer to your enemies. In an intolerable way, they need each other.

Hence…

The Greece Trap
Greece has two options right now.
1. It can stay in the EU and comply with some strict bail-out conditions to help get back on its feet again. Problem – they resent the austerity (severity) of the conditions.
2. It can excise itself out of the EU and go it alone. Problem – they are not good money managers.

Greece is delusional. They keep refusing the EU’s offer when no one else will throw them a bone.

For mine, Greece is the ultimate spoiled child. They negotiate by ultimatum and are even happy to threaten the relationship (leave) if they don’t get their own way. It’s dumb, selfish and immature.

Old habits die hard and Greece is not about to change its ways, especially under the rule of a radically left Prime Minister in Alexis Tsipras.

Cleaning the Greece Trap
So why doesn’t the EU just cleanse itself of Greece?

In short, Greece helps keep the value of the Euro Dollar down for the other member states. This is critically important for countries like Germany who are massive exporters and rely on a low ED. A rising ED would make them less competitive and present more serious ramifications.

From Greece Trap to Greek Salad
So why doesn’t Greece just leave the EU?

Firstly, the value of the Drachma (Greek dollar) would drop like a stone. Re-denominating the Euro dollar debts into Drachmas would be an absolute night mare.

Secondly, exiting the EU would be a massive loss of face for Greece. Maybe too much.

However, if Greece did excise itself out of the EU, there is a chance they could still climb their way out of this mess. But it would rely on good management and great leadership.

If the value of the Drachma plummeted, the Greek Islands could become a world tourism juggernaut. Who wouldn’t want to visit a stunning holiday hot-spot like this one on the cheap!

Affordable holidays would get the place pumping again. They could sell cart loads of Moussaka and Ouzo to all comers on the way through and trade their way out of trouble.

But the big ‘if’ is management. The last 30 years have proven they are not the best money managers so in the mean time they remain trapped.

To that end, Greece does not present itself as a direct threat to us. My biggest concern right now is China. It has been for a number of years and later this month I will explain why.

See you in a few weeks!

Adam