The Greek Economic Crisis 7-7-2015

7, July 2015                The Greek Economic Crisis The small Greek David aimed their referendum sling shot at the Eurozone Goliath but failed to produce a favorable outcome. The Eurozone behemoth is made up of 18 countries representing 337 million people with a combined GDP of $15 trillion. By contrast, Greece with a population of 11 million has a GDP less than 2% of Eurozone’s aggregate GDP – a  loss which amounts to an insignificant rounding error. It can perhaps be argued that the lending agencies, the “triloka” made a series of bad loans knowing with near certainty that Greece would default. The referendum was couched in vague language and the outcome was a near certainty that the Greeks would reject more austerity (why would anyone welcome “more pain”?). A more honest and meaningful vote should have been to ask the Greeks to vote if they wanted to stay in the Eurozone. Writing off half of Greek’s debt ($270 billion) would send the wrong message, namely that their profligate spending, gross mismanagement and failure to reign in the tax cheats would be forgiven; this would create an extremely dangerous precedent. This mini crisis sends a clear message to all monetary union partners; keep your house in order and meet your obligations. On the flip side the Greeks like to remind Germany that their  Wirtschaftswunder, the economic miracle, was only possible after their post war creditors retired 50% of their outstanding debt and restructured the remaining 50% in the so-called London Agreement in 1953.