THE Greek government defaulted on its debt-amortization payment to the International Monetary Fund (IMF) last week. The headlines read that “Greece has become the first developed country in history to default to the International Monetary Fund.” Actually, it should say, “The first developed country in history to default twice to the IMF,” because, to make its payment a month ago, it borrowed from the IMF to pay the IMF.
In the next 48 hours a referendum will be held to allow the Greek people to vote on whether the government should accept the bailout terms of the IMF and the European Union (EU) to advance further loans. A “No” vote means that the country will lose its debt financing. A “Yes” vote means that the austerity measures and reforms that lenders are demanding will move forward, and debt negotiations will start once again.
No one has a clue as to what the referendum results will be, and no one has a clue as to what the consequences will be whichever way the vote goes.
But, one way or the other, the financial and economic world will be significantly changed.
At stake is not only more lending (or not) for Greece, but whether Greece will remain in the European Monetary System and continue using the euro currency or even remain as part of the EU.
For a background and explanation of how this all came about, feel free to read the several hundred million words that have been written in the last months. You will discover that Greeks and their government are lazy and corrupt, who took extreme advantage of their more prosperous and hardworking European neighbors to fund their lazy and corrupt lifestyle. Or, maybe, Greece was the victim of predatory and greedy lenders, which took extreme advantage of simple people who were only borrowing to raise their standard of living. Take your choice.
But the bottom line is that the current—and, perhaps, future—debt obligations of Greece can never be repaid, even under the best of economic circumstances over many lifetimes.
Greece is asking that a portion, if not all, of its current debt be forgiven. Who of us wouldn’t prefer that the bank cancel our credit-card debt? However, then the other pigs (a term we have not heard in a while) of Portugal, Italy and Spain would want the same debt forgiveness. But it took Europe some five years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet of the IMF and the European Central Bank. To forgive the debt of the other pigs might require selling the entire continent of Europe to China for cash.
The economic experts, both in government and the private sector, are spending much time telling the global financial markets to “Keep Calm and Don’t Worry.” That only works if you can come up with rational base-, best- and worst-case scenarios. There are so many critical variables in play that creating reasonable scenarios is impossible. Goldman Sachs’s has two scenarios from a “Yes” vote. The current Greek government will either remain in power or it will resign. Well, that certainly makes things perfectly clear.
Local public and private experts are also echoing the “Don’t Worry” mantra. This best is that whatever the outcome, it will not have a “direct” impact on the Philippines. That is the intellectual equivalent of saying Supertyphoon Yolanda had no “direct” impact on Manila. The Nepal earthquake did not have a “direct” impact, but did prompt a massive preparedness campaign.
One local analyst said that Greek problem would make investors cautious of looking at second-tier countries like the Philippines for investment. Another said that after Greece, investors would look to economies like the Philippines because of its low debt. Both are probably correct, but with the future lying somewhere in between.
In October 2008 I wrote a column, titled “The Death of Debt-Based Wealth.” I quoted then-Pope Benedict XVI as saying, “The current global banking crisis indicates that the modern world economic order is ‘built on sand.’” I honestly thought that governments had learned enough not to make the same mistake again by building enormous debt. I was completely wrong about governments having any sense, and Greece is the result. But, then again, I also said, “The stock market? You will see the best buying opportunity probably near 1,950 since 2003.”
Greece is only the latest symptom of governments’ debt-addiction, and it will not be the last. Next week is going to be very interesting. Kalí tíhi—that’s “good luck” in Greek.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
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