Eureka!

When we talk about literature, philosophy, science, mathematics, and astronomy we always star with Greece. Greece one of the countries that I am dreaming of visiting at some point in my life, best known as the “Cradle of Western Civilization”  and the fountainhead of today’s Occidental wisdom. Greece the Mecca of culture, the land people like Aristotle, Plato, Socrates, Pythagoras is today in a big whole.

Greece today has a debt of 120% of their GDP. In simply terms their debt is bigger than their economy by 20%, but what make this problem worse is that Greece is part of the Euro zone community (countries that adopt the Euro currency), which by nature will spread to this countries. Their situation is very, very delicate. As I am posting this blog, Greece officially ask for a package loan “bail out” from the IMF and the Euro zone Central Bank (ECB) . Some oppose any intervention of the ECB, others explicitly beg for it, but the situation is more complex that what it look like. They are difference scenarios; 1) It’s get done a bailout by the IMF and ECB, this will probably will delay the harm, but ultimately will devalue the Euro currency, and eventually will need more money, but furthermore it will set a precedent just like US in 2009, it will sent the wrong signal to the rest of the Euro communities . 2) It should be a complete bailout by the Euro zone community through the ECB, meaning  it will increase substantially the new money that will be print, since it won’t be ECB solely without the IMF, and will also affect but in a bigger scope the Euro zone. 3) The most drastic of all, is just to let Greece default their debt, if this happened the Euro will literally collapse, and it will create a major political and economic crisis among the Euro members.

Although it looks like different options with some similarities in my opinion, the results pretty much will be the same. The crisis will spread around the Euro zone, with report that Spain situation is worse the Greece, and next in the list Portugal in Italy. They are major concerns especially in Germany. Germany has been the big winner out of the currency unification (will explain in my next post why) but this crisis could be a game changer for Germany number two exporter in the world second to China.  Now you ask yourself, how Greece got into this crisis. Pretty simple the major spending by governments drove Greece to this deficit together, with the easy credit policy by the Greek Banks, plus all the regulations and failing to tighten credit in the good years. A centralize government and a lot of regulations has been the story of Europe, it is this reason why Europe has been the region with less economic growth in the world besides Africa in the last 20 years.

To put things in perspective here is a table of the national debt of the countries mention above:

  • Italy has a 115.20% public debt of their GDP
  • Greece has a 120.3% public debt of their GDP
  • France has a 79.70% public debt of their GDP
  • Spain has a 66.6 % public debt of their GDP
  • Portugal has a 75.20% public debt of their GDP

At the end of the day all this debt mismanagement of budget and fiscal policy will put a lot of stress on the Euro currency and in my opinion will affect in great matter on the Commodities prices such as Oil, Gold, and Sugar. Why? ……….First because this will make the dollars strong (for the wrong reasons), and also will be less global demand for this commodities all around the world because of weaker economies.

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