Greece – the endgame approaches

Perhaps we're finally getting near the end game for Greece. With no agreement on a coalition, there looks like there will be an election in early June (although, at time of publishing this, there are still last-ditch talks going on). The hard left socialists of Syriza look set to win a decent majority in a new contest, not surprisingly because - to an outside observer at least - their leader, 37 year old Alexis  Tsipras,  seems to be the only Greek politician whose entire demeanor doesn’t drip despair and defeat.

Where I suspect he is deluded is if he really thinks he can re-negotiate the terms of the bailout with (principally) Germany. Because if Europe caves in to Greece, then the Irish, the Spanish, the Italians will be queuing up to wiggle out of their commitments too. If this does happen (and I put it at no more than a 20% chance - not impossible but unlikely), then the only result can be a hugely inflationary exercise in printing Euros.

So you better make sure your organization’s risk assessment  include a major rise in inflation as a low probability, high impact risk event.

Much more likely however is a refusal from Germany et al to change the terms of the agreement, leaving Greece the choice of backing down or getting out of the Euro. It’s hard to see how Tsipras could back down without looking a complete fool, retreating, tail between his legs - so then Greece will be forced to leave the Euro.   He can blame the intransigence of other countries, and look to lead a national government to see Greece through the difficult couple of years adjustment. He’s a national hero if it goes OK, and at worst he still retains more credibility than if he just backs down. (I’m a believer in looking at personal motivation even in the case of major political events, as you can see!)

IMF World Economic Outlook database

And it probably is only a couple of years. Despite the prophets of doom, if you look at what happened to countries that had similar defaults and currency crashes, such as Argentina in 2001, things started picking up surprisingly quickly after the initial shock.

Just think how attractive Greece would be next summer with a Drachma and prices down 30% on this year. Tourism would pick up almost instantly, as would food and drink exports. Western European firms would suddenly be interested in Greece as a low cost manufacturing hub. There would of course be a lot of pain - but worse than what the people are going through now? I doubt it.

Holidays in Greece - 30% cheaper next year?

So there are a number of sensible things organizations should be doing - don’t have too much cash in Greek banks is probably the most basic advice, and look at contractual terms for any agreements with Greek firms. Indeed, if you have any exposure to the country, some serious contingency planning is probably sensible.

Now whether a Greek exit would lead to more turbulence in terms of Spain and other countries - that's another issue. Let's see what happens to Greece first!

 

First Voice

  1. 5th Columnist:

    Take a step back and it’s not so complicated.

    There’s plently of money in the world, it’s just that it’s all in the wrong place. So, all Mr Tsipras and his like want to do is take the money from where it’s no use and put it where it will be most use.

    Now who can agrue with that? Not Michael Meacher.

    http://www.guardian.co.uk/business/2012/may/02/scourge-wealth-divide

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