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December 5, 2012

Why Greece Matters

Kevin E. Dayhoff

As the global financial recession enters its sixth year, and the so-called apocalyptic ‘fiscal cliff’ looms large in the U.S., the repeating Greek chorus in this global economic opera played-out an all-too familiar refrain last Friday when the German Bundestag approved more bailout funds for Greece.


Yes, Greece – that tiny country of approximately 11 million people in the eastern portion of the Mediterranean between Italy and Turkey, with barely two-percent of the entire Gross Domestic Product of Europe, and capably competes with Argentina and the U.S. to command over 100 percent of everyone’s global, chronic, economic migraine headache.


Remember, it was not long after the Great Recession officially got underway in December 2007, when rumblings started to be heard that Greece was technically bankrupt.


“Greece kicked off the crisis in 2009 by admitting its budget deficit would be 12.9% of GDP, more than four times the EU's 3% limit,” according to an article written for by Kimberly Amado.


Over the many years since Greece was first admitted into the European Union in 1981, and especially since 2001 when it joined the eurozone; the storied land of mythology, ancient civilization, and the birthplace of the Olympics, has lived huge, way beyond its means and lurched toward defaulting on its loans and economic chaos for over four years.


Say it ain’t so. Greece is the stuff of ancient lore, the beginnings of democracy and western philosophy with a documented history that dates back to the 3rd century BC, with a modern, high standard of living that The Economist ranked as high as 22nd in the world as recently as 2005.


Yes, The Economist Intelligence Unit’s quality-of-life index, ranked Greece as a better place to live than such storied countries as France, Germany, and the United Kingdom.


To add to the mess the Greek economy had been particularly hard-hit by the recession. Not to be overlooked is the equally not-too-small matter that its government is in shambles, unemployment is over 25 percent and its citizens have grown quite comfortable with their standard of living, thank you very much, and are in no mood to accept anything less.


As of last Friday the Financial Times reported: “A broad majority of German lawmakers has approved more lenient terms for emergency loans to Greece…


“The vote removed an important hurdle on the path to the eurozone releasing the next tranche of funding by the middle of December.


“Of 584 members of the Bundestag who cast a vote, 473, or 81 per cent, backed the measures, a clear sign of Germany’s continued support for euro rescue despite mounting worries about the need eventually to forgive Greece some of its debt…”


The Washington Post, and a number of other publications, carried an Associated Press account which said, in part, “The agreement paves the way for Greece to receive €44 billion ($57 billion) in rescue loans, without which the country would face bankruptcy and a possible exit from the euro. It stops short of forgiving outright debt owed to lead creditor Germany and other eurozone governments.”


Furthermore The Financial Times noted, “In their latest agreement to save Greece from insolvency, eurozone governments want to cut interest rates on and extend the duration of Athens’ bailout loans.”


Yes, if you will recall, it was as recent as February 8, 2012, that it was reported in that “just last Sunday, The Washington Times carried a Reuters’ article that bellowed, “Greece only hours away from default.”


Meanwhile, last Friday, the aim of the Bundestag and leading economic thinkers in Europe “is to cut Greece’s sovereign debt to 124 per cent of gross domestic product by 2020, about 20 percentage points lower than the government’s current debt path…,” reported The Financial Times.


A Greek default – or a substantial debt forgiveness scheme - poses a systemic risk to the European and, indeed, the global financial system, because, believe it or not, many European banks investing in sovereign debt, such as Greek bonds, were allowed to hold inadequate or, in some circumstances, no capital reserves against the loans based on its rated risk.


To put it another way, there is no collateral, no rainy-day fund. Only crickets chirping and the sound of cold air rushing by in an economic free-fall as one domino would be followed by another and another and more.


Meanwhile, if you have considered traveling to Greece this winter, Rick Steves says: “My guides report that our Greece tours so far this spring have been as smooth and fun as ever — virtually unaffected by the local political and economic events…”


Mr. Steves is a critically acclaimed travel-writer of European guidebooks and host of travel shows on public television and public radio. He further reports that according to one of his guides in Athens: “First and foremost, Greece is a safe place to visit. In fact, it’s a good time to visit because you will be made especially welcome. Tourism is Greece’s heavy industry and its leading employer.

“It seems to me that US media coverage of Greece has been nothing less than hysterical – just plain silly at times, and woefully lacking in analysis. Greeks are emotional people and they are given to outbursts of anger – as well as outbursts of joy. Their bad governments in recent times have given them plenty of reasons to be angry.


“The scenes in Syntagma, the big square immediately in front of the Greek parliament building, are a symptom of this … When you see riots on TV, they are generally the work of a group of anarchists who are limited to Syntagma and know how to get on the news.”


Awe gee, we have never heard of the media hyping a story and leading readers to an incorrect version of events, now have we? Yeah, right.


. . . . .I’m just saying. . .


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