Saturday, February 11, 2012

Greco-Euro Drama: Non-Sequitur Ramblings

The drama of the Euro continues to play out in the nations that participate in the Euro. The effects of this game are impacting all the members of the Euro zone, and many nations beyond. Italy is one of the largest bond holders in the world, and it is currently being impacted by this "Crisis". This impact has reduced the credit rating of 34 out of 37 Italian banks as this Bloomberg article states.  This toxic exposure to Greece et al, has placed Italy in a precarious situation.

Currently, Greece is seeking the assistance of other countries and outside investors to "bail" them out. Will this work? Who is willing to take the chance on "investing" in a failed political/economic model? As the bailout talks continue, the Greek Prime Minister is requesting more cuts in the budget, or they can quit, as this article explores in more depth.

Will the Euro survive in 2012? Time will tell. This next article states that Greece is in its 5TH YEAR of being in a recession. As per this article titled, "Greece and the Euro: An Economy Crumbles", it explores how banks are losing deposits due to the fear of the client's savings converted to Greek ersatz Currency. In other words, the Greek Citizens are losing faith in the Fiat currency. Or, they are not being productive enough to fulfill the concept of "full faith and credit" of the "backing" of this fiat currency. The currency is backed by the full faith and credit of the Government. How can one have faith in the Government if the government needs a bailout. Moreover, if the citizens' productivity is low, how does the Government collect revenue to fund the operation?

Speaking of productivity, another point of interest in the article: Jobless rate in Greece is at 18%. This factor combined with the fact that most workers employed by the Government, there is no innovation being created. Printing more dollars, transferring debt from someone who is non-productive to a productive nation is not the solution. Would a local bank give a non productive person a loan? Why is this any different?

In closing here is a quote from the Economist article:

"But Greece’s economic problems are too big to be fixed quickly. Despite a jobless rate that has risen to 18%, Greece still has a current-account deficit of 10% of GDP (see chart 2). For an economy to have so much slack and yet consume more than it produces is a sign of chronic un competitiveness."

I agree, and its a sign of a country that is not producing any wealth.

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