Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Greece Bailout, Austerity and Protests, Greeks May Look North

Politics / Euro-Zone Oct 22, 2011 - 12:56 PM GMT

By: John_Browne

Politics

Best Financial Markets Analysis ArticleAs a final bailout framework for Greece continues to elude negotiators from France and Germany, the situation on the ground in Athens continues to deteriorate alarmingly. Protests have turned increasingly violent and riots have occurred in the most sensitive portions of the Greek capital.


The demonstrations have taken a political toll on the ruling socialists who recently passed the latest austerity measures with the slimmest parliamentary majority. Indeed, Louka Katseli, a former labor minister of the present government was expelled from the party as a result of her opposition to the latest austerity deal that paved the way for an immediate infusion of 110 billion euros of EU and IMF bailout funds.

The growing popular unrest and political wrangling portend an election defeat for the government of prime minister George Papandreou. Many have speculated that the growing dissatisfaction will force an election much earlier than the currently scheduled election of 2013. This begs the question: "What policies would be pursued by a new Greek government with respect to their debt obligations?

I would suggest that the next leadership coalition would likely look to similar choices made by the government of Iceland, when a similar crisis struck the tiny Nordic island in 2008 and 2009.

During the bubble years earlier in the last decade, the Icelandic economy was one of the world's leaders in debt issuance per capita, and a highly leveraged financial sector helped make Iceland an economic superstar for many years. However, it also exposed the tiny country to the first tremors of the global financial crisis. When creditors panicked and started pulling money out of Iceland's bank, the tiny economy was soon overwhelmed, and plunged quickly towards bankruptcy.

When faced with the insurmountable and reckless debts, a cascading recession, and the demands of the international political elite for more debt and austerity, the government of Iceland put it to their citizens. In early 2009, with a vote of 90 percent, Icelanders chose to default, leaving foreign investors, bankers and governments, holding much of the losses. The event stands as a stark reminder to the dangers of lending to overly indebted borrowers.

As a result of the default, the Icelandic Krona fell sharply, at one point dropping more than 70 per cent against the euro. A recession of some 5 percent followed. However, as a result of its debt repudiation, the Icelandic economy did not die. In fact, in the ensuing two years, the Icelandic economy has shown signs of improvement. Indeed, Bloomberg has reported that, "Iceland is doing better than anyone could have hoped."

Doubtless, Iceland did not adopt a costless solution. Their economy now is still a shadow of what it was back in the boom days of 2005 and 2006. However, their default may prove to be far less burdensome socially and politically than the increased debt and austerity that had been encouraged by central banking elites.

The rioting in Greece indicates that there may be massive voter enthusiasm for a solution along the lines of what occurred in Iceland. The difference between Iceland and Greece is their size (Greece is much larger), and the degree to which they are integrated into a larger political establishment (Greece is a member of the EU). As a result, Iceland was able to pursue its own agenda with fewer strings attached.

Banks in France and Germany, the two countries that dominate the European Union, hold a great deal of the sovereign debt issued by periphery EU countries with less sophisticated economies. As a result France and Germany are using their considerable political clout to prevent Greece from becoming another Iceland. Instead, they are forcing Greece to take on even more debt (and to make painful austerity cuts).

But increased debt reduces the ability to service even the current debt. Indeed, it increases the cost and difficulty of future borrowing. In the end living standards have to fall.

But, in the Internet age, voters are far more aware. For how long will voters accept increasing austerity and greater poverty in order to keep afloat governments they see as corrupt and banks they perceive as greedy?

If the citizens of Greece follow the Icelandic lead, a larger sovereign debt crisis will likely follow. In such a scenario all fiat currencies will likely suffer. However, those considerations will merit little concern from those throwing Molotov cocktails on the streets of Athens. In the end, Greek politicians will cater to their constituencies rather than their creditors. We should all prepare for that.

It is time for investors to hope for the best but to plan on the worst. Part of this plan should involve greater care for portfolio currency selection, which is examined in greater detail in a report recently put out by Euro Pacific Capital.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in