I hate to keep coming back to Greece, but it’s turning out to be a major Greek tragedy over there. The country cannot pay back its initial $130 billion or so emergency bailout and now needs another $150 billion to pay back loans and avoid a sovereign debt default. The reality is that Greece is tanking and falling into shambles, waiting for a white knight to appear and clean up the financial crisis. The country needs to follow strict austerity measures.
I recall being in Greece in 1995 and wondering why there were so many buildings in the construction phase sitting idly with no progress. The taxi driver told me that, in Greece, all construction halts if interest rates are high, waiting for rates to decline before continuing.
Greece is a beautiful country full of history, and one that’s significant in the development of mathematics and the arts. Yet now there appears to be a Greek tragedy in the works.
After much debate and compromise, Greece was extended a second bailout package if it delivered a tough austerity program. In my view, it was a done deal, as Greece did not have another option. Stock markets rallied on the news. The uncertainty in Greece was over.
American-born Greek Prime Minister George Papandreou then shocks the global markets earlier this week after announcing that the country will need to hold a national referendum to determine if its citizens want to accept the new debt crisis bailout terms from the European Union. Papandreou is clearly trying to save his own hide.
Perhaps he should come back stateside and run for President?
Again, I’m talking of survival here for Greece. What is there to talk about? As I said the other day; imagine being on the brink of losing everything, but someone says, “Don’t worry; I have money for your debt crisis, even if you may not be able to pay it back.” Would you say no?
The European Union obviously is fed up with Greece and wants a resolution to the debt crisis. The European Union has demanded that Greece must accept the austerity measures plan in order to receive funds; otherwise, it may need to leave the European Union and go it alone. Of course, if this happens, Greece would go into default, which could lead to a financial crisis throughout the eurozone and cause havoc. Opposition parties in Greece are calling for Greek Prime Minister George Papandreou to resign and for a coalition government to accept the European Union deal. Germany and France have indicated that they are tired of the Greek stalling and want the deal done now.
In my view, it’s silly that Greece believes it has any other options left and is risking a catastrophic debt crisis and default. The debt crisis is not limited to Greece. Italy is also struggling with its own massive debt crisis and austerity measures, while Portugal wants more flexibility in the terms of its debt bailout. The demands, it seems, will not halt and Europe likely has more problems waiting down the road.
My feeling is that the risk continues to be high, as you can read about in Stocks Facing Many Hurdles Ahead.
Longer-term I continue to favor small-cap stocks. You can read why in Small-caps in a Bear Market, But Have a Long-term View.