Tag Archives: debt crisis

The Latest from Greece

Screen Shot 2015-08-07 at 8.54.19 AMWhile negotiations on Greek debt continue to be mired in uncertainty, the Greek banking system is taking a daily pounding.  And you can understand why.  If Greek representatives were to suddenly walk away from the table and leave the Eurozone, the country would have to print its own currency (Drachmas), which would almost certainly be worth less against the Euro from day one.   In order to pay its creditors, the Greek government might have to keep the presses working overtime, which means that the poor Greek citizen who left his money in a Greek bank would watch helplessly as his Euros were automatically exchanged for a currency that would be at least 30% less valuable.  Better to take the Euros out now and keep them under the mattress until the negotiations work themselves out.

This may be a wise strategy for individual Greeks, but it’s terrible for a banking system that relies on deposits in order to make loans and, more basically, remain solvent.  Meanwhile, Greek negotiators are trying to stave off German demands for austerity, arguing that the country has already experienced the worst recession in Eurozone history, and stocks have fallen to roughly the level they were at in 1990.  If the past five years of austerity has produced this kind of results, they argue, then perhaps a different strategy is in order.

The banking situation has complicated these negotiations, since international observers now believe that the banks may need an infusion of as much as $27.5 billion to remain solvent—before the next day’s lines at the ATM machines.  That means negotiators are now talking on two fronts; debt relief and recapitalization of the lending system that is the nerve center of any economy.

Will you be affected?  For most U.S. investors, the Greek tragedy is simply a spectacle to tell your grandchildren about.  Greece will survive, eventually the money will come out from under the mattresses, and Europe as a whole might find a way to be more accommodating when one of its own gets into financial trouble.

Sources:

http://news.yahoo.com/greek-banking-stock-plunge-again-debt-crisis-dominates-082744811–business.html

http://www.huffingtonpost.com/jakob-von-uexkull/from-greek–to-euro-crisi_b_7926532.html

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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Life Satisfaction and Economic Growth

You’re probably tired of hearing about the Greek debt crisis, but sometimes it helps to connect the abstract with the concrete—that is, the huge numbers involved with the actual lives of the people living in the country.

The Greeks today live in a vacuum of uncertainty, with their banks closed at least another day, limited access to their funds, and the knowledge that the banks don’t actually have much of the money they’ve deposited there unless a somewhat uncaring European Central Bank decides to provide a backstop package of guarantees.

And they’re not alone. The chart, with statistics compiled by the Organization for Economic Cooperation, shows the percentage change in the “life satisfaction” of the average person in different countries since 2007—which roughly marks the beginning of the financial crisis around the world. As you can see, there has been a small decline in the U.S., probably reflecting wage stagnation and a slow recovery in jobs and economic activity. But look at the bottom and you see that the Greeks have experienced a 27.3 percent decline in their life satisfaction. According to the report, only 47.8% of Greek citizens agree with the statement: “I generally feel that what I do in life is worthwhile.” In Denmark and the Netherlands, 91.4% agree with that statement.

 

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Other countries that are experiencing a debt crisis and high unemployment—Italy, Spain and Ireland—have gone through lesser (but still significant) declines. Meanwhile, at the other end, the German people, who hold all the cards in the various debt crises, have been experiencing a mild euphoria, matched only by Slovakia and Chile, which have been among the fastest-growing economies over the past seven years.

Overall, there was a strong correlation between the growth of GDP per capita and perceived life satisfaction among the countries studied—with a few exceptions. The people of Denmark and the Netherlands seem to have been consistently satisfied with their lives before, during and after the crisis. The people of Poland and Turkey seem to be unmoved by the rapid economic growth their countries have experienced recently. And the U.S. and Canada, which are better off than most of the world economically, have experienced a decline in their general life satisfaction. Maybe we should realize how lucky we are in our situation compared to the Greeks’.

Sources:

http://www.forbes.com/sites/niallmccarthy/2015/07/06/life-satisfaction-in-greece-has-plummeted-infographic/?utm_campaign=Forbes&utm_source=TWITTER&utm_medium=social&utm_channel=Business&linkId=15339276

http://www.ons.gov.uk/ons/rel/wellbeing/measuring-national-well-being/measuring-national-well-being–international-comparisons–2015/art-mnwb-international-comparisons–2015.html#tab-Personal-well-being

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

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The Next Bailout

It has been five years since the newspapers exploded with stories of the Greek debt crisis, which, we were told, threatened the very existence of the Eurozone.  Eventually, a variety of bailout packages were negotiated, and things seemed to return to normal.

As it turns out, the current rescue package will run out at the end of June.  The European Union finance ministers and leaders of the newly-elected Greek government appear to be far apart in their negotiations on extending the bailout.  The European Central Bank, International Monetary Fund and the European Commission have demanded that Greece institute another round of economic reforms, meaning austerity in government spending and services, higher value-added taxes, pension cuts, and a continuing decline in the Greek GDP and standard of living for ordinary citizens.  The citizens, naturally, have been reluctant to endure any more pain, and elected leaders from the Syriza Party who ran in opposition to any more austerity, promising instead to cut a better deal, spend more and generally use Keynesian economic theory to restart the economy..  The Greek government recently rehired 4,000 public sector workers in a clear display of independence from the creditor demands.

Greece’s finance minister has agreed to make the next 750 million euro loan repayment to the International Monetary Fund, which staves off immediate default.  But there is no question that the country will have to refinance 172 billion euros of debt.  No deal means default and, possibly, what people are calling a “Grexit” from the Eurozone.  You can expect to suddenly see headlines about the looming “crisis” and once again hear intimate details about the financial situation in Greece.  If the negotiations succeed, and Syriza officials win concessions, it could bolster the strong anti-austerity populist movements in Spain, Portugal and Ireland.

Should you be concerned?  If you’re holding a private stash of Greek bonds, or are receiving a government pension from the nation, then you should be following these developments closely.  If not, then there is nothing about the negotiations which will change the underlying value of European stocks and bonds in most American portfolios.  The headlines could cause a selloff, particularly in the event of a Grexit, but corporate earnings and valuations will ultimately prevail, whether Greece is given a grace period, whether it remains part of the Eurozone—or not.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

http://www.ft.com/cms/s/2/7f31597a-f4cd-11e4-abb5-00144feab7de.html?ftcamp=published_links%2Frss%2Fhome_us%2Ffeed%2F%2Fproduct#axzz3ZV6PABAZ

http://www.huffingtonpost.com/rj-eskow/13-questions-about-greece_b_6621708.html

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