Greek Crisis Is Just Beginning
Today former European Comission President Romano Prodi said that the Greece crisis is "completely over." This may be the best indicator that the Greek Crisis is only just beginning.
“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”
In previous articles I have mentioned that one thing we can be sure of is lots of hand waving and talk, but not necessarily a lot of action. This seems to be hand waving and an attempt to boost confidence. Unfortunately for Greece, it's problems persist no matter how much confidence people have that they don't. Years of too much spending combined with pension guarantees and citizens taxed to the hilt cannot be remedied by confidence alone. Greece is going to face tough times, and it's hard to imagine that the worst is behind Greece.
Intervention by European nations to date “was enough” and countries such as Spain and Portugal have “plenty of time” to get their finances in order, said Prodi.
What intervention by European nations? Talk? Has any real help other than "moral support" and talk of potential aid really been extended? Germany's Chancellor, Angele Merkel, has repeatedly refused any financial aid to Greece, and with good reason! German's don't need to bail out the Greeks, and if they do, you can bet Spain, Italy, and others will try to jump on board.
Prodi says these countries have "plenty of time," and time is definitely one thing that Greece and other countries do have, I think its just a matter of how good that time will be. Time is what it is going to take to resolve these issuesn the meantime it probably won't be a pretty picture for the economies of these countries, nor of the Eurozone.
Smokescreen in the Eurozone
This week the news about Greece, Spain, Portugal, and trouble in the Eurozone have been rampant. On Thursday and Friday many news articles hit the press about a Greece "Bailout," yet none of the articles seemed to have any substantive quotes from EU officials, or any quotes from any EU press releases or anything.
As much as I tried to find some verifiable evidence that the EU was going to provide aid to Greece, it was not to be found. The best we got was a promise of “determined and coordinated action.” That doesn't say much to me.
Today I came across this little gem from reuters with Eurogroup Chairman Jean-Claude Juncker. Juncker says:
"I cannot today name an exact instrument... We have many instruments ready and will use them if necessary," he said.
I can't help but think this sounds very suspicous. It sounds very much like "We don't have any instruments or know what we can do, but we want you to think we do!"
"The basis of the Maastricht Treaty is that a state bankruptcy does not come into question. If we had thought a euro zone member could go bankrupt, we would have devised instruments to deal with that. This is not envisaged," Juncker said.
Sounds like he's telling us that they had not foreseen a bankruptcy as possible in the Eurozone, and this would lead me to conclude that they probably had no "instruments" set up in the event of a bankruptcy.
While the markets seemed to be very optimistic about the news of EU aid on Thursday and Friday, I remain very skeptical. Until we see this "deal" in full, It doesn't look to me like there is much to hope for. The EU thought bankruptcy of a member state was impossible and thus had nothing in place in case it happens. Now they claim to have many instruments, but yet cannot name any. They pledge moral support, and "determined" action, but I don't think either of those have much of an affect on Greece's real problems.
Greece doesn't really have a good way out, and aid from the rest of the EU will be very difficult as citizens of other EU states will not be happy about such actions. Europeans are known for violent protests and extreme civil unrest when they get angry, so I think any bailout or aid will be difficult to comey by.
We don't know for sure what will happen in the Eurozone with Greece, Spain, Portugal, or Italy, but one thing seems quite clear to me. We can definitely expect to see lots of smoke, mirrors, hand-waving, and potentially even coverup once things blow up (and I think they will). The best thing for the citizens of Greece (and the rest of the eurozone, by not having to bail them out) may indeed be a default that allows them to start over, and potentially no longer be part of the EU or its currency schemes.
Addendum
Forgot to mention the ultimate sell signal that Blackrock gave us this week regarding Greek bonds.
The company has a so-called overweight position on Greek debt, holding more securities than allocated in its benchmark, even after Standard & Poor’s, Fitch Ratings and Moody’s Investors Service cut the country’s credit grades in December. The fund may continue with this strategy for “some time,” said Michael Krautzberger, co-head of European fixed-income in London, after EU leaders pledged yesterday to help Greece regain control of its finances.
“They won’t allow a Lehman-type crisis,” said Krautzberger, who helps oversee BlackRock’s $3.35 trillion of assets. “The market has worried too much about an imminent government default in Europe that will not happen because of the solidarity.”
"Solidarity" doesn't seem to be stopping local cities in the U.S. from declaring bankruptcy. Such confidence in a group that didn't even think bankruptcy was a possibility when it was formed. In addition to the fact that the seemingly have no real instruments to use and seem to have their hands tied, all I can say is thanks Blackrock for the tip to stay away from Greek bonds.