GREECE: What does withdrawing from the Euro ZONE really mean?

This past weekend (July 5th) the Greek population voted NO, essentially giving their political leaders their approval of a possible withdrawal from the European Union and a possible rejection of the EURO as their currency.

To start, I find it interesting the Politicians wanted to have this referendum when they were only elected a few months ago on a platform to play hardball with the EU in terms of debt negotiations.

The bottom line leading up to this referendum was trying to enhance their negotiating position. Their skills fell short and they couldn't bring home the solution they were hoping for — so essentially they wanted to take their ball and bat and go home. In fact they didn't even own the bat or the ball; hence the Referendum. In my mind this was a sideshow act to continue the Game of Chicken with the EU.

I find it interesting the Minister of Finance is an Economist and has written extensively on the topic of GAME THEORY. Essentially a concept where two sides play chicken and see who flinches first.

It is also interesting the Greek Finance Minister, Yanis Varoufakis, comes from a very wealthy family. I'd be pretty confident he will be well looked after regardless of the outcome to the Greek population. Not to mention his book sales are probably on the rise. Just yesterday the news broke stating he had resigned. Apparently his point was it would be better to have someone else present Greece's position to the EU. I would suspect he was instrumental in getting the Greek people to vote NO and now he can simply sit on the sidelines and watch as a situation he 'aggravated' plays out.

He didn't get his way and now no longer wants to play with the other kids.

BACK TO THE ISSUE AT HAND:

Greece has suffered from austerity measures since this whole Greek affair started some 5+ years ago. Their GDP is down significantly. Unemployment is about 25% and younger workers unemployment is as high as a 60%.

They owe approximately 343 Billion EUROS or about $480 Billion (Cdn) with a population of 11 Million.

To put that into perspective Canada owes about $600 Billion with over 35 Million people.

STOCK MARKET IMPACT:

Most world markets have declined in the last couple of weeks as we have watched this situation play itself out.

Markets hate uncertainty. This back and forth on whether Greece could pay its installments has been the main contributor to market drops.

Nothing has been resolved or changed as a result of the vote.

Greek Banks have had to control the amount of cash people are allowed to take out to about 60 EUROS a day or about $84. The banks are not financially sound enough and need money from Europe to keep themselves afloat. Europe continues to say they will support Greece but still want them to address their loan repayments.

COMPLICATED ISSUE:

In all likelihood Europe will find a way to support Greece. The bigger fear on the Markets' minds is a term called Contagion.

Contagion basically looks at the situation like this: If Greece can get away with not paying its Country's debts well maybe Portugal, Ireland or Spain might be next.

Should we be concerned about Greece? Yes of course. But we have been concerned about Greece for the last five years and I don't think this will change anytime soon. The issue is too complex to have a simple answer.

There are too many unknowns: Will they leave or won't they? Will they adopt their own currency or won't they? What happens to private debt owed by Companies, not the Government? Will the Greek Unions actually give up lucrative pensions that don't exist elsewhere in Europe? Will the German people (for example) want to work longer so their Greek counterparts can retire earlier than they do? Will the Greek Government actually collect all the taxes they should? Will they let the underground non taxpaying economy still exist and flourish? Who will lend money to bankrupt country and if so at what cost?

CONCLUSION:

Market Volatility will remain but I can't foresee an 11 million population dictating world trends.

The Greek population couldn't possibly comprehend the financial consequences of leaving the EU & the Euro. I feel their new Government is not dealing effectively with their own people and is playing on their emotions.

We all elect politicians to deal effectively with issues. This is why we elect them. Abdicating their role through some artificial referendum is no answer.

Personally, I am more concerned about the demand and price of oil, its ripple effect on Canada than I am about the Greece fallout.

#Greece #marketcommentary

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