Syriza, Tsipras and Varoufakis are leading the Greek Government using their Grecian Formula expertise in Modern Game Theory. Their election promise has been to keep Greeks from paying their taxes and to secure massive haircuts on the debts owed to European creditors. European leaders have repeatedly claimed the Greeks have miscalculated their strategic decision making. However, the International Monetary Fund (IMF) has now sided with the Greeks arguing for a long term moratorium on Greek debt repayments and for large cuts in the total long term debt obligations exactly as Greece has insisted. Syriza has pressured Greek voters to reject Eurozone bailout austerity so he can win the negotiating game with the help of the IMF. The vote will be close this Sunday July 5th. This saga is unlikely to end this weekend regardless of the vote.
We do not believe there will be much risk of a Greek debt collapse contagion where other countries start to fail and demand new terms. However, should the IMF and Greece win massive debt restructuring then there is a risk that Spain and Portugal will push for a better deal. If Germany and the ECB hold their ground with no major new debt relief, then the risk from a Greek default or from contagion is minimal. It’s a rough game for the Greeks who have already been living though a Great Depression with a 25% contraction in the GDP rivaling the US Great Depression of the 1930’s. Should Greece miscalculate and lose financial backing from Europe it will cause an even further contraction. However, the US and Europe should be fine after any short term shock-waves.
Greece is a tiny economy with a proud history in finance, academics and culture – ancient history that is. Multiple national defaults, socialist extremism, a perpetually corrupt Government and no structural efficiencies has led to a shrinking population, massive unemployment and more than 50% of the economy operating on the black market with massive tax fraud. In our opinion Europe would be unwise to accept anything but a guaranteed governmental restructuring that unleashes capitalism under an enforceable tax system with more austerity and incentives.
Greece is a world leader in debt defaults and the inability to collect taxes. Small companies and individuals rarely pay taxes or their fair share as they openly lie about the wages paid and earned with the confidence they will never be audited. Greece will not survive debt forgiveness until they restructure far beyond what has been agreed upon.
The news of bank runs and chaos is now scaring the lifeblood of the Greek economy away. Tourists are canceling vacation plans in large numbers in 2015 at a time when Greece needs every dollar and euro it can get. Tourists provide 16% of the Greek GDP and 9% of its jobs. Now Greek ATM’s are running out of cash, banks are closed, credit cards are being refused making it quite risky for tourists to take the vacation risk this year. Even with renewed Euro backing we hear experts warn it could take 2 to 3 weeks to fully reopen banks. No agreement will be worse. 2015 will be a dire year for Greece regardless of the debt negotiations. A clear agreement is desperately required – soon.
Clarity on ANY outcome in Greece is likely to lead to a US and European stock market rally. The odds of a clear resolution are far from certain with the July 5th referendum. Stay cautious on Bonds and stocks until there is a breakout from the current entrenched trading ranges and muddled geopolitical outlook related to Greece. In the long run Greece does not matter other than the reputation for heart healthy olive oil and historical artifacts. Time will tell if the current infrastructure will follow in the footsteps of Hellenistic Greece and the Roman conquests that consumed their culture.