Intuitive Assessment of Greek Debt Crisis

There are currently two crisis pendulums swinging back and forth over the financial markets, threatening to drop the corpus into a deep pit of despair.  The first is the U.S. debt crisis which has a certain deadline of 1 July, 2011.  Whether that crisis is truly resolved or not I cannot say.  The other large crisis is the Greek debt crisis.

As I have done in the past, here is my intuitive assessment of the Greek debt crisis:

• Right now there is no clearly dominant force in the negotiations.  Here I can identify multiple oppositional forces:
  • Greece vs. Europe
  • within Greece I can feel three parties opposed to one another:
    • the current government vs. insurgents
    • and the people of Greece against anything suggested from outside of Greece
  • within Europe I can feel four main forces:
    • France, and its backers
    • Germany, mostly on an island
    • U.K., and its backers
    • European finance and banking authorities
• Importantly, the population of Greece feels arrayed against the rest of Europe.  Increasingly this opposition is taking the form of an emotional rejection of Europe, as opposed to a logical or philosophical rejection of Europe.  So continued, escalating rioting in Greece seems very likely.
• France, not Germany, feels like the dominant European voice at this time.  This makes sense because French and Swiss banks stand to lose the most in the event of a Greek debt default.  But this is a shift.  Germany has been the voice in Europe on the Greek debt crisis dating back to last year.  Yet, I feel that France has the dominant position right now.

The above factors all collide into mush.  That is, no definitive outcome is able to be sensed intuitively.  However, this is still important information.  It means that a resolution to the crisis is unlikely in the near term and that there is going to be continued stress exerted on global financial markets.

One thing that I can feel is that the will of the Greek people feels as if it will collapse in the face of outside European force of will.  Tying this intuition to facts makes the situation clearer.

Greece lived beyond its means for decades because it played the U.S. and Russia against each other in the Cold War, thus receiving large amounts of foreign aid.  This aid led to a massive entitlement culture in Greece.  Once the Cold War ended Greece could have faced the flame of massively smaller aid injections and adjusted its entitlement economy to a productive, generative economy.  But it didn’t.

Then Greece entered the EU by lying about its finances and received, you guessed it, more aid.  So the reckoning of the hollow economy with reality has been coming for almost two decades.  Now the Greek public is furious.  But it feels as if they are finally going to have to face the reality that Greece is not the country that it thought it was, and erroneously convinced itself, it was.  Ouch!

In classic European fashion, the majority of pundits in Europe are calling to push back the deadline for doing something from July to September.  When in doubt, the Europeans love to do nothing.  The Greek debt crisis experienced its initial foment last year and is continuing on as I write this post.  So why not push into the future some more the resolution?

I will continue to monitor the crisis.  But right now I am repeating my advice to investors of “stand on the sidelines” until the two big crises are resolved (U.S. and Greek).

Jason