Sunday, January 25, 2015

Explaining the Election from Greece

The quickly called election in Greece will occur today (Sunday).

To set the stage....Greece came through the 2008 world economic stumble....admitting it was bankrupt.  The books used to convince the EU that they were ready back around 2000 to enter into the Euro business?  Two looking good, and the real one which displayed substantial faults.

Most economic experts will say it's not a recent development.....that Greece has been screwed up on finances for a minimum of fifty years.....some will even go back to 1942 and say it started then.

To save Greece.....the EU and Germany to a great extent....gave them a loan of 240-billion Euro.  There's a pay-back plan.  Most all economic experts that I've seen interviewed over this in the past month have said that the loan basically did nothing except to stall or extend Greece to the next default.  The government has been unable to sustain any rebuilding and confidence.

So, what this election is about....covers three things.  First, whoever wins....will have to forge a collation....because it's doubtful that any party will get a majority.  The agreements forged in this team-building exercise might go from one extreme to the other.  Second, it's doubtful that the new government will want to repay the 240-billion Euro....perhaps asking for forgiveness over the bulk (this happened in the 1950s with Germany....where a massive loan was simply forgiven).  Third, the new government might say 'enough' and quit the Euro and the EU.  This act would be a serious episode and possibly trigger some talks in Europe over the direction forward.

In the last couple of years, the topic of Germany owing Greece has continually come up.  There are two views to this.  One.....Germany squeezed out a loan in 1942 as they invaded Greece....which by today's value is eleven billion Euro.  Pay-back of that loan has not occurred.  Even if Germany agreed to the eleven-billion Euro as part of some forgiveness package deal....there's still 220-plus billion left that they'd have to pay back to the EU itself.  The second issue here is damages caused to infrastructure from WW II.  From one has ever sat down and assembled a list of bridges destroyed or buildings blown up.  Greece had a fair amount of damage done.

All of this revolves around the only significant gimmick of money coming into Greece....tourism....and two-million-odd Germans who come each year and spend money at resorts and seaside villages.  By the time you add in rental cars, shopping, food, booze, and a week or two at some resort....the typical German will probably spend at least a thousand Euro each.  In some ways, you have to be careful on the direction that this exit occurs and how many insults you can throw at Germans before they react and they start to skip Greece as a destination.  Germans aren't the only tourists.....but they do make up roughly twenty-percent (Wiki numbers) of the big picture.

The election results?  A big deal.  And likely to create some massive trend that is hard to steer in one direction or another.  The bottom line?  Greece will be center-stage for the next month on your nightly news as they try to assemble the government from this election, and launch toward the new strategy....which is currently unpredictable.

No comments: