We are waiting to hear who has won the Greek elections today and by how much. That may sound like something less important than the use of slightly deflated footballs by the Patriots, but it is a seed that can grow into an international disaster. Pre-election polls all show the far left winning in Greece. The only question has been the scope of that victory. Will they have enough to govern without coalition partners or not?
The reason this election is important is that the likely winners have pledged to end austerity in Greece. The country is already broke and it budget is dependent on bailouts from the rest of Europe. For the last six years, the country has been in recession. Unemployment is extremely high and the decline in GDP has been close to 25%. Only recently has the country's economy started to look like it is coming out of the recession.
In the past, the Greek currency would have fallen drastically and the economy would have stabilized as Greek products fell to the point that the rest of the world started to buy them again. Greece, however, is part of the Eurozone, so its currency is less related to the Greek economy and more to the German economy. Even though the Euro is substantially lower against the dollar, it is still too high for the Greeks to get any help on that front.
If the new Greek government renounces its debts to the rest of Europe, the most likely outcome is that the Eurozone will begin to unravel. Greece will be ousted and those who hold Greek debt will suffer major losses. No one knows if this will lead to the departure of other weak economies like Portugal, Ireland or even Italy from the Eurozone. All of Europe's economies will be upset even though Greece is such a tiny part of the continent, particularly in economic terms.
And what will be the result for Greece? Most likely, it won't be good. The Greek government can start increasing salaries and pensions, but it will not be able to have the cash to do so. The only remedies for that problem will be to print new currency or to raise taxes even higher. No one will be willing to lend money to a country that just renounced all its debts. These "solutions" won't work for too long. The economic crash that will follow will make the past six years of recession look like a picnic in comparison.
The goal for the USA and Europe ought to be to make sure that the problems of Greece do not spead elsewhere. If the Greeks vote for economic suicide, that is there business. We need to make sure that they don't kill us all too.
The reason this election is important is that the likely winners have pledged to end austerity in Greece. The country is already broke and it budget is dependent on bailouts from the rest of Europe. For the last six years, the country has been in recession. Unemployment is extremely high and the decline in GDP has been close to 25%. Only recently has the country's economy started to look like it is coming out of the recession.
In the past, the Greek currency would have fallen drastically and the economy would have stabilized as Greek products fell to the point that the rest of the world started to buy them again. Greece, however, is part of the Eurozone, so its currency is less related to the Greek economy and more to the German economy. Even though the Euro is substantially lower against the dollar, it is still too high for the Greeks to get any help on that front.
If the new Greek government renounces its debts to the rest of Europe, the most likely outcome is that the Eurozone will begin to unravel. Greece will be ousted and those who hold Greek debt will suffer major losses. No one knows if this will lead to the departure of other weak economies like Portugal, Ireland or even Italy from the Eurozone. All of Europe's economies will be upset even though Greece is such a tiny part of the continent, particularly in economic terms.
And what will be the result for Greece? Most likely, it won't be good. The Greek government can start increasing salaries and pensions, but it will not be able to have the cash to do so. The only remedies for that problem will be to print new currency or to raise taxes even higher. No one will be willing to lend money to a country that just renounced all its debts. These "solutions" won't work for too long. The economic crash that will follow will make the past six years of recession look like a picnic in comparison.
The goal for the USA and Europe ought to be to make sure that the problems of Greece do not spead elsewhere. If the Greeks vote for economic suicide, that is there business. We need to make sure that they don't kill us all too.
1 comment:
We are KILLING OURSELVES, Spending $1 Trillion a year more than our Gov. Takes in, printing our dollars to cover the debt. borrowing the rest.
Where are the real economists? BALANCED BUDGET? We have gone from the greatest lending nation in the world to THE GREATEST DEBT NATION. What a ABSOLUTE Travesty!!!
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