A Greecy mess

Then (Jesus) said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s.” -Matthew 22:21

Watching the mess in Europe unfold is stunning and should be for anyone who knows what a budget is, and keeps one.  Over the past week, the first, and by many claims just the initial, implosion of the Eurozone occurred, with the collapse of the Greek government.  While this blog is my second of five strictly observational blogs, I would like to explore what this may mean for us, as our dollar is often compared and exchanged with the Euro in trading.  This situation is having direct effects on trading of commodities, such as oil, and therefore is important.

The public debt is equal to about 312 billion dollars in Greece, which is the equivalent of each citizen owing over 27 thousand dollars.  This amounts to 126 percent of GDP.  Now, this may not seem like much of a problem because their public held debt is relatively small compared to the trillions in the U.S., but the problem comes from the fact that the government has been hogtied to do anything as a member of the European Union.  When Greece joined the union, members of the European Parliament sound the alarm that Greece is not in a good enough order financially to become a member.  The economy in Greece was very strong at the time, however, as they were riding high on a wave of exceptional growth.  Their economy prior to 2009 was the fastest growing in Europe.  This growth was taken advantage of by the ruling socialist party,  the Panhellenic Socialist Movement (PASOK), who grew the government, inflated public benefits and pensions with shorter work days, and enjoyed healthy salaries on the wave of growth.  As a result of the excessive growth, the PASOK party began to run deep debts, and keep the debt high throughout their period of beefy economic growth.  But when the economy slowed down worldwide in late 2008, the economy, which is heavily dependent on tourism, began to slow in tandem with gradually decreasing tourism.  Once this happened, the government couldn't take in the revenue it needed to maintain the interest in it's debt, and a ticking financial timebomb was initiated that may have just started to blow up over the past week with the resignation of prominent leaders.

Greece could be working through this problem more effectively if it had greater financial freedom, at least that is what many voices are saying.  The "Ron Paul of Europe," Nigel Farage, has been grilling this on the European Parliament for some time.  Now he's actually making sense to many of his fellow members because the measures implemented by the rest of parliament are not working.  Mr. Farage brazenly pointed out that Greece is still going to default, because even if the holders if Greece's debt give them a 50 percent break, the public debt will still be at 120 percent of GDP.  That's still a MOUNTAIN that could easily keep growing as interest rates on debt will jump in 2014. 

The entire financial and economic system in Greece is controlled like the rest of the members of the Eurozone.  It is controlled through joint policy handed down by the European Parliament, The European Central Bank, and the International Monetary Fund (of which the U.S. is heavily invested in).  This control essentially hogties Greece and the rest of Europe, minimizing the options that the leadership of Greece actually has when dealing with it's own debt.

Big government in Greece started the mess, now an even bigger government is limiting it's options to fix it.  The problem is, as a member of the Eurozone, everyone that participates in the Euro will have to carry the baggage of Greece, as the economic issues in Greece will and have been dragging down the value of the Euro and ultimately the entire European Economy.  So many people are losing confidence in Greece to balance it's books and for the Parliament to make a wise decision that Iran is now providing most (and by some accounts all) oil to Greece because other oil providers have backed out.  And now since Italy may soon join the ranks of Greece, this can only be expected to spread. 

So now exactly what does this mean for us?  As the Euro loses value, the dollar tends to be stronger, which drives our prices of commodities down as they are traded in dollars.  The exchange rates fluctuate daily as one strengthens and the other weakens.  Almost always this means cheaper gas at the pumps for us in America.  If oil companies cease to do dealings with countries in Europe, then this could play in our favor as well, but only time will tell if it would be enough to have a significant effect on prices, as emerging economies have been notorious for gobbling up oil in growing amounts over the past several years.

The mess in Greece is a lesson that many leaders from around the world should look on and try to avoid at all costs.  While Governments work substantially different than businesses, making contractual obligations that they can't fulfill to third party sources or other governments is never a good idea.  I'm glad some leaders in the United States see this as well and want to reduce our debts before they explode on us.