This week’s events in Greece drive home several realities in our new post-modern, millennial world. I was fortunate to have the the opportunity to join the tweet-up and live discussion these past two days on the BBC World Service program World Have Your Say (twitter @bbc_whys or #WHYS) with business leaders, citizens and media reporters from Europe and the Americas. Despite the ever-changing sociopolitical dynamic in Greece (this situation could be much worse or altogether worked out by the time I finish this blog post) there are some standing conclusions we can make from all of this that will change how banks approach sovereign debt and how the issue of international economic cooperation will and will not be handled in the future.
1. Greece owes a lot of people a lot of money. The next payment is nearly $US 800B in the coming weeks. They can’t pay it. Period. So someone needs to step forward to do so and/or an organized reduction in their debt (read: write-off) needs to occur. There is a proposal on the table from the Eurozone countries to allow this to happen.
2. Regardless of the workout arrangement that finally occurs, the challenge for the 10M Greek citizens will be difficult ones. The austerity measures demanded by the Eurozone nations have evolved into a set of policy decisions that questions the rights of a nation state to determine its own society. The Greeks don’t like it and given the fragile political structure in that country the Prime Minister has deftly taken a “it won’t entirely be my decision” approach to democracy and cast the idea of a referendum. While the populism of this move is unquestionable, the uncertainty it causes in economic markets creates a “more of the same, always in crisis” mode making it difficult to move ahead on any form of structured, lasting and predictable economic recovery.
3. We are all inter-connected, and while we in the US have our own debt conversations and tough decisions to make, the Greek situation – for a nation state of not many more people than my current state of Michigan – has global implications. Banks around the world including central banks are going to take a write-down on their debt and we will all need to indirectly pay our share.
4. Greece is just one letter in the word PIGS. Portugal, Italy and Spain all have similar situations in the future, if not by the end of this year than over the next several years. How and what we do with Greece will serve as a test-bed to organized work-outs with these other, much larger economic issues.
There is a small fringe group advocating Greece leave the Eurozone. This would be under the treaty guidelines a decision Greece would need to make as no one nation can “force out” another from the EU or the Eurozone. However, based on my informal conversations with several German business partners, many in Germany wouldn’t shed a tear over Greece returning to the drachma, devaluing its currency, and providing even greater vacation bargains for the rest of the EU to enjoy on holiday. The downside to this “eat the bitter pill quickly” approach is that it dangerously sets a precedence for nations to abandon the Euro, while at the same time wiping out a lot of savings the Greek citizenry has put into the banking system almost overnight. This “structured Argentina work-out” might be a good thing for some Greeks, very bad for the confidence of the Eurozone and its member states.
For more information on the Eurozone conversation visit the BBC media sources across the web.