Euro-zone Debt Crisis, Germany vs Greece, and Spain and...

By: Ian_R_Campbell

Why read: Because things can happen very quickly, and it may be that 'push' finally may be coming to 'shove' in the Eurozone.

Commentary: Even if 'push' and 'shove' don't meet in the Eurozone over Greece (and Spain) in the next few weeks and months, time nonetheless seems to be shortening for Greece (and Spain), and eventually 'push' and 'shove' must meet. I have said for months now that:

• Greece will have great difficulty meeting the austerity commitments required under its months-ago agreed bailout arrangements;

• Germany is the key player in any and all Eurozone bailouts; and,

• what happens in the end in Greece may well be 'precedent setting' with respect to what subsequently happens in other Eurozone countries that require bailouts.

In the past few days Greece has said it needs:

• 1.5 billion euros more than the 11.5 billion euros previously agreed in prior bailout negotiations - a 13% increase; and,

• more time to get its house in order.

In a recent meeting, German Chancellor Angela Merkel is reported as having been unprepared to address Greece's plea for more time.

Concurrently:

• the European Central Bank is reported as planning to delay progress with respect to its expected bond-buying program until Germany approves the so-called European Stability Mechanism (ESM) plan. However, ECB President Mario Draghi yesterday spoke to a so-called Outright Monetary Transactions Program which would see the ECB buy 'unlimited quantities' of 1 -3 year government bonds - see reference to this later in this Newsletter;

• the ESM plan is waiting on a German court ruling on its legitimacy - scheduled for release September 12; and,

• reports suggest more than one country is preparing for the possibility of a Greek Eurozone exit and, as one report says, "a subsequent domino effect".

Greece is a comparative small problem when measured against that of Spain (and Italy), and in recent days Spain's bailout requirements have been a topic of escalated interest.

That said, remember Dr. H. Albertus Boli's fable of the little Dutch boy who saved Holland by sticking his finger in the dyke. If you are not familiar with that short story, or are familiar with it but haven't read it in a while, you ought to consider reading it. In summary, it is a fable about a little boy who, seeing a hole in a faltering dyke, sticks his finger in it. The dyke springs more leaks, and the Burghers (read for purposes of the fable 'the ruling class') find other little boys to stick their fingers in those holes - and so the story goes.

It will take you about 3 minutes to read the fable. No doubt the fable will bring a smile to your face, and may bring a larger smile to your face as you consider whether many politicians and central bankers ought to drop their 'fancy suit disguises' and don centuries old Dutch garb, thereby not just acting like the 'Burghers' in the fable who postponed their problem, but looking like them as well.

In summary:

• I think time is running out for both Greece and for Germany (and perhaps for Spain), in the case of Germany in the context of the 'support' or 'no support' decision it will have to make with respect to Greece;

• I give credit to German's for generally being able to recognize a 'leaking dyke' for what it is, and to deal with it in a practical and unemotional way in the end. Stated differently, in the end I don't think Germans will behave like the 'Burghers' in the fable;

• I think in the end Germany will act on what it assesses to be its own self-interest, and will not simply be focusing on Greece when it does that. That may mean that Germany proves to be prepared to 'bite the bullet on Greece' given its comparatively small size, and postpone the 'big Eurozone financing question' until it has to deal with Spain; and,

• it just may prove to be that the number 13 - being the percentage of required bailout increase recently announced by Greece - may prove to be a further bad omen of things to come in the Eurozone.

Again, I suggest you take 3 minutes out of your day to read or re-read Dr. Boli's fable.

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

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