Greek Elections and a Revolution in the U.S.
Forget about what the Greek elections meant for the market. What do they mean for Greece? What does it say about what’s going on over there?
The obvious answer is that it’s a state of disarray. There are 7 different parties all vying power, 3 of which are close enough in the polls to warrant serious attention. So that’s 7 different groups of people who have their own ideas about how to solve the problem.
Greeks have a reputation for not being able to get organized and focus on problem solving, but I wouldn’t be too quick to label the current political disarray as a cultural problem. Remember how many different opinions our country had when we were in the thick of the financial mess. Everybody and their uncle had their own opinion about what to do. If organizing a presidential campaign wasn’t such a mind-blowingly expensive proposition, how many different parties might we have seen in the 2008 or 2010 elections? Almost certainly, the Tea Party would have divorced itself from moderate Republicans. Same with the Occupy [Wherever] leftists, assuming somebody smart enough was able to organize the scattershot nature of their message and enthusiasm.
Aside from the lack of national cohesion in Greece, it does seem clear that a majority of Greeks want to stay in the Eurozone. Roughly 70% want to keep the Euro as their currency. The ultra-leftist Syriza party — the guys that wanted to give the EU the finger, reject the bailouts, and go back to the drachma — only garnered 27% of the vote. Those guys finished 2nd out of 7, but keep in mind that 27% is starkly a minority.
We forget about this in our assumption that the only and obvious long-run equilibrium is one where Greece is not in the EU. The math of austerity just doesn’t work.
Remember, Greek bonds have already had one massive haircut, which is a default by any other name. That got their debt-to-GDP down from a laughable 198% of GDP to a still-problematic projected 120% of GDP. And in the meantime, the bailouts continue. This can’t last forever. A proper default is a virtual certainty along with an exit from the EU. The only reason it hasn’t happened yet is that there isn’t really a mechanism for doing so. That, and European leaders are ace can-kickers.
Last weekend’s election simply delayed the inevitable. Philosophically, that’s totally irrelevant. But the market seems to enjoy the fact that there will be more time to work towards that inevitable outcome.
Begrudgingly, I agree with them.
What’s the point?
If you’re like me, you periodically have to stop and ask yourself why Greece even matters. It’s a fair question. In the grand scheme of things, the planet and its $60 trillion economy doesn’t care about the piddly $300 billion that Greece contributes. It doesn’t care about the $500ish billion Greece owes. Let’s be honest, its creditors can probably absorb another 60% haircut despite all the crying that they can’t.
