The real cost of the Greek crisis

Recent headlines, which pointed to Greece being the first ‘developed world’ economy to default on a payment to the International Monetary Fund, illustrate why the country’s plight matters. The concern is that it might indicate where other first world economies with large welfare states, huge debts and a dependency on imports might be going: headlong towards a process of deleveraging that becomes contagious. In Europe, this is the case even for signatories of the Stability and Growth Pact, the legal framework established in 1997 as a prelude to introduction of the single currency to ensure fiscal responsibility in the European Union [1] . For this reason, markets, which seem almost dangerously complacent, may well be right to expect a last-minute fudge on Greece. The risks of a financial accident are rising, however, as the stalemate continues.

Greece’s debt has been unsupportable but it may not be the only economy in such shape. At current growth rates, the debt loads of most western economies (broadly the highest ever seen in peace time) are similarly unsustainable, just less extreme.

Iain Stewart – Newton, a BNY Mellon company

[1] The pact was intended to limit public debt to 60% of GDP and government deficits to 3% of GDP.





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One Comment on “The real cost of the Greek crisis”

  1. Michael C Feltham

    Anyone with a passing acquaintance with economics, must realise a majority of Western socio-economies and indeed, the Western financial and monetary systems which have existed since Bretton Woods (1944) and the end of WWII have gradually and later rapidly plunged into an abyss, where paper promises and fiat monetary systems have taken over from probity, prudence and good monetary and fiscal management.

    Rather than real value, today, the Western World runs on ephemeral debt obligations: “Funny Money” produced by QE and worse, Credit Money Creation and Fractional Reserve Banking has caused a glut of apparent “money”, flooding bourse centres in the West.

    The IMF, originally the watchdog of post-war global trading and sanity, lost much of its credibility after Managed Flexibility was changed for fully floating forex. Now, it is a toothless dragon, seemingly committed wholeheartedly, to its own demise.

    As Iain states; “with large welfare states, huge debts and a dependency on imports might be going:” most Western states now focus on service industry, imports and spending vast sums on welfare by extracting ever-increasing taxes from the middle earners to pay for such profligacy.

    Asian nation states which focus on real wealth and thus value creation will shortly rule the roost.

    The Euro’s emminence was transitory and illusory: mainly since it rose, dramatically, during the 2007/08 debacle post sub-prime et al, as “funk funds” sought safe havens other than gold.

    Greece, Portugal, Italy, Spain etc were simply encouraged to join the dysfunctional and hugely flawed Euro monetary system, merely to add lustre to an ideological political construct which itself followed the earlier exhortations of the late Jean Monet et al, as was created to fail: eventually.

    Since its inherent flaws were systemic.


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