I find it quite humorous that the world is singing the praises of the Greek “deal” and the ink is not even dry on the paper yet. One thing’s for sure—this thing is not over. Greece has been lying and cooking the books for decades. They are not going to change because Germany put a gun to their collective head. Prime Minister Alexis Tsipras is saying the right things, going through the motions, but the proof is in the implementation. This proof will take a long time to come to fruition. This time will provide enough breathing space for Greece to wriggle its way out of any consequences that they really can’t live with, like reforming their economy.
Socialism is a dastardly thing. I can impact an entire generation. The inconvenient, simple truth is that this generation of Greeks will not change. They have grown up on the welfare state gravy train. They know nothing else. They are not showing the political will to make the reforms needed to alter the direction of their economy or their future. This is the evil of living off of other people’s money. Over time, it saps your ability to survive in the real world, like a Pavlovian experiment gone horribly wrong. The animal just waits for another handout, rather than going out and hunting his next meal.
The other inconvenient truth is that there is no way Greece can pay back this amount of debt. Perhaps Germany and the other European nations wanted to make an example of Greece, so that other indebted nations wouldn’t get any ideas. Perhaps if Greece makes good on its promises, then there will be debt relief down the road. But, that is a BIG if.
My advice to Greece is to take the pain and leave the Euro.In a few years, you’ll be better off. There is no way your economy can be competitive against Germany. By accepting this bailout you are only delaying the inevitable to save your own political skin. If Tsipras really wants what is best for Greece, he will push the tiny country out of the Eurozone. It’s not the end of the world. Greece can stay in the EU and NATO.
Once out, they can devalue their currency and start over.
But alas, I think Tsipras wants what most socialists want in the long-run—power.Socialism always is about controlling others. It never is really about the people, as Lenin and a long line of Marxists after him showed. Tsipras will do and say what is minimally needed to get money for Greece and to save his political skin. He will probably have to create a national unity government to stay at the throne.
In any event, what does this do to the euro? I still believe the euro will not exist in a few years as it does now. There are too many problems. It is just a matter of time.The debt is too great. However, there is probably a buying opportunity here on euro weakness. Once the Greeks convince the Europeans they are serious, even if it’s not true, the euro will bounce. However, I wouldn’t hold large amounts of assets in the currency long term. Diversification is the key going forward for foreign exchange reserve currencies.
Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt. He is a contributor to Fox Business, Newsmax TV, and others. LToddWood.com