EYE-BALL Guru on – Greece – Should they be allowed to leave the Eurozone …
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- Greece -
- Should they be allowed to leave the Eurozone -
| Author: EYE-BALL Guru | 30th July 2012 |
|The GFC has made a mess of Greece and several other Eurozone Nations. For over two years all the talk and intent has been to keep the Eurozone intact and it is time to rethink the whole exercise.Nations like Greece and Spain, and soon to be joined by other members of the P.I.I.G.S. – i.e. Portugal, Italy, Ireland and the two already mentioned, Greece and Spain – have nowhere to hide. They are bankrupt and on the open market they are for sale.
Yet – the Bankers who are owed are forcing Germany and France – the two most stable Nations within the Eurozone to save Greece and the rest.
Let us try and look at this issue from a different perspective.
A Snapshot of Greece’s Economy: (Pasted from Wikipedia.)
The economy of Greece is the 34th or 42nd largest in the world at $299 or $304 billion by nominal gross domestic product or purchasing power parity respectively, according to World Bank statistics for the year 2011. Additionally, Greece is the 15th largest economy in the 27-member European Union. In terms of per capita income, Greece is ranked 29th or 33rd in the world at $27,875 and $27,624 for nominal GDP and purchasing power parity respectively.
A developed country, the economy of Greece mainly revolves around the service sector (85.0%) and industry (12.0%), while agriculture makes up 3.0% of the national economic output. Important Greek industries include tourism (with 14.9 million international tourists in 2009, it is ranked as the 7th most visited country in the European Union and 16th in the world by the United Nations World Tourism Organization) and merchant shipping (at 16.2% of the world’s total capacity, the Greek merchant marine is the largest in the world, while the country is also a considerable agricultural producer (including fisheries) within the union. As the largest economy in the Balkans, Greece is also an important regional investor.
The Greek economy is classified as an advanced and high-income one, and Greece was a founding member of the Organisation for Economic Co-operation and Development (OECD) and the Organization of the Black Sea Economic Cooperation (BSEC). In 1979 the accession of the country in the European Communities and the single market was signed, and the process was completed in 1982. In January 2001 Greece adopted the Euro as its currency, replacing the Greek drachma at an exchange rate of 340.75 drachma to the Euro. Greece is also a member of the International Monetary Fund and the World Trade Organization, and is ranked 34th on the Globalization Index.
The country’s economy was devastated by the Second World War, and the high levels of economic growth that followed throughout the 1950s to 1970s are dubbed the Greek economic miracle. Since the turn of the millennium, Greece saw high levels of GDP growth above the Eurozone average peaking at 5.9% in 2003 and 5.5% in 2006. Due to the late-2000s financial crisis and the European sovereign debt crisis, the Greek economy saw growth rates of –6.9% in 2011, –3.4% in 2010, –3.3% in 2009 and –0.2% in 2008. The country’s public debt-to-GDP ratio stood at 165.3% of nominal gross domestic product in 2011. After negotiating the biggest debt restructuring in history with the private sector, Greece reduced its sovereign debt burden to 132.4% of GDP in the first quarter of 2012.
When Greece joined the Eurozone in 1998 its common currency was the ‘Drachma’, if had a fixed value against the central €Euro currency and that fixed rate value was 353.1 for the period 1998-2000, and 340.75 thereafter.
The €Euro value since 1998 against the US$ is charted below: [Please click on chart to enlarge in a new window.]
€Euro v US$ Chart: (courtesy of Incredible Charts.)
This is a 15 year weekly chart of the €v$US – with 2000 lows of €0.84 and pre GFC highs in 2008 of €1.60. With the Greek currency pegged to the €Euro since 1998, that means the Greek economy experienced a currency appreciation of almost 100% between 2000 – 2008 – i.e. value of exports halved, and value of imports doubled.
The Greek economy GDP growth for the period – i.e. 2000 – 2012 is charted below: [Again please click on chart to enlarge.]
Greek GDP Chart: (courtesy of Trading Economics.)
The old debate on how GDP growth is impacted by Public Debt growth emerges again – does public spending fuel GDP growth numbers? As can be seen from the GDP chart above, GDP growth remained positive except for two single monthly figures in early 2002, and mid 2005. To compare the growth in Greece’s public debt for the same period, please see chart below. [Again please click on chart to enlarge.]
Greek Budget Chart: (courtesy of Trading Economics.)
This chart mirrors the GDP growth in reverse up to the 2008/9 GFC crisis. That is to say – that in the years 2000-08, public debt and GDP growth were in tandem.
To further reveal how the Greek Public Debt grew as a percentage of Greek GDP, see the chart below. [Again please click on chart to enlarge.]
Greek Debt/GDP Chart: (courtesy of Trading Economics.)
As can be seen – when the Debt/GDP chart (above) is compared with the Public Debt chart (previous) – and as Public debt is shown to have fallen in the last two years – the Debt/GDP ratio has grown from 129% to 165%. This translates to a complete meltdown in Greek commerce and industry. Nobody from offshore wants to invest in Greece, and the Greek population are resigned to their fate.
The Greek tourism industry has taken a big hit – much the same as the Australian Tourism industry has. This can be put down to a single factor – currency value.
Overseas visitors to Australia have shrunk by the same value as Australian’s now travelling overseas for holidays. This is a double whammy – and Greece are in the same boat. Whilst they remain attached to the €Euro, their tourism industry cannot compete in the global market – nor any other export market for that matter.
To better gauge this comparison, the ‘Retail Sales’ for Greece over the 2000-12 period is charted below: [Again please click on chart to enlarge.]
Greek Retail Sales: (courtesy of Trading Economics.)
As Greece have reduced their public debt over the last two years due to austerity imposed measures – so has retail spending as shown by the above chart. Greek’s know they are in trouble financially – people are just not spending. During the lead up to the the recent 2nd round of elections, Greek Banks were reporting massive cash withdrawals that compromised liquidity positions of Greek Banks and the Central Bank.
Who’s in Charge – The Banks or the Politicians?
OK – this is all the obvious. What do we do now? If Greece stays in the Eurozone it will become more of a basket case economy that it already is. WIth its Drachma currency pegged to the €Euro – all of its export revenues will continue to dry up. Greece is at the mercy of the World and whoever wants to buy in. That will not happen until Greece is thrown out of the Eurozone and then the firesale of investment into Greece will flow.
The Greeks can do this willingly, or wait until European Banks and the ECB (European Central Bank) cuts off supply at some point in the future.
The fear for Greeks is that for the past 12 years they have fed of the fat of an inflated economy and currency. Debt has been the way of paying for that expansion and lavish lifestyle.
Can this be seen as a Banker’s problem. Yes it should be – they lent sovereign debt and charged accordingly. The only reason Greece is still surviving is because these same greedy Banks want their money back. Greece is not the only Nation lured into sovereign debt crisis by greedy and all to willing Bankers to provide funding on their terms. Of course they should be made to wear the risks when Nations default. The problem there is that the French and German Banks involved would default themselves if they took the hit, and in that light, the French and German politicians are fighting tooth and nail to keep Greece afloat.
So who really is in charge in Europe – the Banks or the Politicians?
What does the future hold for Greece?
It either stays poor and shrinks further into extreme third world status – or it tells the Banks to ‘fuck-off’ and it goes alone. Only then can the Greek people begin to learn how to walk by itself again. The IMF will help them – but it all comes down to how Greek Politicians really want to give up on their own pensions and perks of office.
A Reuters story on the latest developments can be read below. Whatever the outcome – all Greece can offer to the global financial markets is a slow death by a thousand cuts – and in between the slow leak of capital will continue.
… As mentioned – tell the Banks where to go or be their ‘bitch’ for the next generation and beyond …
Greece should opt to leave the Eurozone. It would then have a currency reflective of its worth in international markets and with that worth would come international investment seeking cheap buys. Greece have to start over again – as they did after WWII – they have a pedigree that has been proven and is as old as civilisation itself.
They lost sight after the 2004 Olympics and the GFC found them out – they have to be allowed to rebuild and control their own destiny and they cannot do that with the Eurozone and a currency peg that destroys everything Greece can offer the world.
Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.
The EYE-BALL Guru …