On the 5th anniversary of the May 2010 flash crash, we again find ourselves in an extremely volatile market but this time the landscape is entirely different. High Frequency Trading firms and algo’s are still being criticised for their ingenious and clever ways of extracting profits, but today’s topic deals with a much bigger issue that may ultimately affect all markets.
The big issue? Greece.
Will they remain in the Euro or will we see a ‘Grexit’?
We believe that despite their huge debt and whether or not Athens will make good on their promise of repayments, Greece will remain part of the European Union. Why? Because if Greece goes, the Domino effect begins, and all remaining PIIGS countries (Portugal, Ireland, Italy, Spain) have a green light to exit too.
In our view this would be a catastrophic event and likely cause a significant devaluation/crash-like event in the EURO, resulting in a collapse of the monetary system. Obviously this is something all EU members and the ECB would want to avoid.
Unlike other areas of the world, Europe is unique in that it has one monetary policy set by the ECB and multiple fiscal policies set by the respective governments. Until there is unity between the ECB’s monetary policy and all EU members we see additional pressure to the downside in the EURO, and continued conflict which stems largely from a sovereign debt crisis still unresolved.
But the biggest problem for Greece is not monetary policy vs fiscal policy. The true wealth of a nation is not just it’s balance sheet or gold reserves, but the total productivity of it’s people and their capacity to produce. Unfortunately for Greece- the people’s inability to pay taxes coupled with very early retirement and low productivity has led to a critical situation that may affect all markets and asset classes.
The stage is set for an exciting and highly volatile period over the coming weeks/months as we get a deeper look into how Greece manages it’s repayments owed to the ECB and IMF. We believe that the consequences of a Grexit are too substantial for the EU to allow such an event, and should Greece fail to make timely repayments, they will be exempt from any further defaults.
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This is typical of the Greek culture. How do you change a countries culture to be more productive? And how does Greece, as a result of all this, fare in the Misery Index?
Well written!! Question is what can they do to bring in cash? They have very little by way of export and are an extremely lazy population. Remember what happened when they tried raising the retirement age from 55 to 60, or was it 50 to 55?? Was absolute caos, riots for weeks. Do the same countries that are in debt themselves once again bail Greece out… and how long can this cycle continue.
Hi Joe and Paz,
You have actually raised some extremely important questions and I’m not sure if I have enough time to really answer it in length.
I will give you the short version though.
I actually don’t think its Greece’s fault completely, I will say that it is becoming a society issue.
As a society we are now heading towards a FREE society where most people expect something for free. This in turn causes many long term issues were if you don’t pay for things now, then the next person will not get the benefit as the company or country you dealt with runs out of money because you didn’t want to pay for their services or your share of taxes in the past (for example).
Its actually a simple equation.
I think it’s time we all take a hard look at ourselves in the mirror.
Their economy is a reflection on most of their people. Too lazy to do any of the hard labor jobs which all the Pakistani people do and they won’t export any of their specialised goods. Instead they want to over charge for everything and keep everything they have in the country. They should get over their history and get with the times
Appreciate your views!
I continue to read things like “Lazy greeks at fault”
From a psychological perspective, laziness remains inconclusive. You can be labelled lazy for either:
a) Slow to do something (aka procrastination)
b) Doing something slowly
c) Not doing anything at all
Many people are quoting all of the above – however, I fail to believe that this culture can inherently be lazy. Especially one that dominates our history in many evolutionary ways.
Are we looking into this more than we should? Can this all just be a simple answer, the Greeks borrowed a lot more than they can chew? It does happen to the best of us.