Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Greece Dependency Has Created Dangerous Illusions

Politics / Eurozone Debt Crisis Feb 10, 2015 - 04:44 AM GMT

By: John_Browne

Politics

Once again the crisis in Greece is threatening the unity of the entire euro zone. Many analysts are asking what must be done to restore viability to the Union's weakest link. Lost in this discussion is that modern Greece, formed in 1830, has never really been required to stand on its own. Generations of support from abroad, typically given for strategic reasons, has created a false sense of prosperity in the country and has prevented the Greeks from accepting the realities of their current situation.


When Greece fought for its independence against the Ottoman Empire in the 1820s, the struggle became a romantic cause throughout much of Western Europe. Both money, material, and fighters poured into the country (Lord Byron being one of the most famous volunteers). After independence, Great Britain continued to subsidize the new nation, largely to create a bulwark against the Ottomans and the growing Russian Empire. (Greece was an important staging area for the Crimean War of the 1850s). This support continued through both World Wars. In the second half of the 20th Century, the power and popularity of the openly pro-Soviet Greek Communist party turned the country into one of the front lines in the Cold War struggle against the Russians. To tip the balance one way or another, both East and West poured money into the country.

In this context, drawing Greece firmly into the Western orbit, through its absorption into the euro zone, appeared to be the ultimate strategic victory for Western Europe. To Greece, the prospect of Eurozone membership held the enticing prospect of large hidden internal monetary transfers to offset the vastly differing economic performances between the so-called 'Southern', or 'Mediterranean', nations and those of 'Northern' Eurozone members. In its zeal to pull Greece into the Union, the EU ended up accepting figures (put together with the help of Goldman Sachs) that masked the country's fiscal condition.

Germany, on the other hand, joined the euro for decidedly different reasons. Until overtaken recently by China, she was the world's largest exporter. In order toprotect the interests of its export machine, Germany agreed to trade its legendary Deutsche Mark for the relatively weaker euro in exchange for a protected trade zone that would guarantee the supremacy of German products in the world's largest market. German politicians saw the euro as a unifying mechanism providing a means of creating a financial empire across the Continent. However, German citizens were accustomed to a strong currency protecting the value of their hard earned savings. Furthermore, they retained horrific memories of currency debasement and collapse under their 1920s Weimar government. To overcome these fears, rank and file Germans had to be convinced that the euro would remain strong. In order to fulfill both opportunities, Germany's leaders promised their people a sound euro. Greece and other Southern tier countries in the Union are perceived as threatening that commitment.

The newly elected left-wing Syriza party in Greece, led by Prime Minister Alexis Tsipras, has brought all of these simmering differences to a much fuller boil. Tsiprashas declared that Greece will no longer abide by the rules laid out in the 2012 bailout memorandum that had been dictated by the ECB/EU/IMF 'Troika'. Tsipras maintains it was agreed to by a previous administration, but under unfair duress, and is, therefore, invalid. (Although this idea has not prevented him from asking that the Germans pay supposedly unpaid WW II reparations debts agreed to in 1953.)

After so many years of support, it appears as if Tsipras cannot allow for the possibility that the Northern Europeans will finally pull the plug. He is also banking on the hopes that the Germans do not want a precedent in which an exit by Greece encourages other Southern countries to leave as well, which might lead to a collapse of the euro. This has set up perhaps the biggest game of chicken in Europe since the Sudeten Crisis of 1938 and the Berlin Airlift of 1961.

This places German Chancellor Angela Merkel in a particularly difficult position. Against German urgings, the ECB recently announced $1.27 trillion worth of Fed-style QE. For years Germany had stood fast against the growing support for the ECB to follow the U.S. Federal Reserve into a policy of attempting to stimulate economic growth through quantitative easing, a process of printing money in order to buy sovereign debt, thereby increasing inflation and lowering long term interest rates. The decision to go ahead with QE, despite its unpopularity in Germany, has generated among Germans great political anger and increasing disillusion with the EU. In this light, the prospect of giving more support to Greece, as the country threatens to abrogate prior agreements, could not come at a more politically awkward moment.

According to a new Emnid /N24 poll (1/29/15), only 16 percent of Germans agree with a partial write-down of Greek debt. While 33 percent would extend the repayment time schedule, a massive 43 percent of Germans are against any concessions whatsoever.

However, in the present increasingly anti-EU political climate, any mishandling of the Greek situation that leads to a Greek euro-exit could break the euro and lead to the collapse of the entire EU concept. As the EU has the world's largest economy and the second largest currency, the effect of dissolution could result in a currency crisis and throw a shaky world economy into a catastrophic depression.

Should the Greek situation not be settled, the Anglosphere-led world faces massive political, economic and financial consequences. The EU is possibly its first great experiment in global governance. It believes it must not fail.

Given the entrenched interests, a political solution will likely be found that leaves Greece within the euro. The price may be increased political integration within the EU, with political incentives offered to Germany that will justify the financial costs borne by unwilling German citizens. However, when politics is involved, anything is possible. It appears as if the new Greek leaders are flush with victory and will be willing to risk a wider crisis in order to deliver on their campaign promises.

My hope is that Greece's longstanding dependency on foreign support makes it a distinct case in the Southern tier. Italy, Spain and Portugal have not been on the front lines of strategic and ideological struggles as often as Greece has been over the past two centuries. As a result, their willingness to make additional demands from the North may not be as deeply ingrained. This means that even if Greece leaves, its exit may be a solitary one, which might result in a stronger Eurozone, and a stronger euro.

While investors might hedge long European positions, they could be wrong to sell Europe short. It is more likely than not that the Eurozone will find a solution that retains Greece, which may make the euro and certain European stocks look cheap relative to the U.S.

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in