The ancient Greeks had gods for just about everything.
If you needed a little love, you made an offering to a fat kid with a bow and arrow. When you wanted to catch more fish, you paid homage to the long-haired guy with the funny looking pitchfork.
But they didn’t have a specific god or goddess of money. According to scholars of the Olympic pantheon, Hades — brother of Zeus and ruler of the underworld — is the Greek god most often associated with money.
Ironically, with the mounting debt and money problems facing them, fiscal hell is exactly where the modern Greeks find themselves caught today.
Over the last several days, the Greek debt crisis has spread like a wildfire from Athens to Berlin, Brussels and Paris. Athens’ fiscal turmoil, which started six months ago when the Greek government fudged its budget data, now threatens to destabilize the Euro-zone’s nascent recovery from the recession.
Greeks Are Not the Only Losers
Yesterday, several credit rating agencies, including Standard & Poor’s, reduced Greece’s credit ranking to junk status. The impact on the markets was immediate. The euro currency fell nearly two cents, the U.S. stock market had its biggest drop since February and gold prices soared more than $20 an ounce.
The uncertainty swirling around the Greek situation also caused the credit rating agencies to downgrade the debt for the three other EU members, Portugal Italy and Ireland. With this increased risk, it means that the cost of borrowing for each of these countries will be significantly higher, making it even more difficult for them to climb out of debt.
Standing in the way of a pending Greek rescue package is German Chancellor Angela Merkel. As the largest economy in the EU, the Germans wield the biggest stick.
The crisis is deepening because Merkel and many of her supporters are loath to hand over taxpayer money to a sovereign nation that apparently is unwilling or unable to get its own house in order. With key elections on the immediate political horizon, the German Chancellor has been circumspect about providing direct aid to Greece or any other EU member in a fiscal Hades of its own making.
If the Greek government defaults, its bondholders stand to lose up to 200 billion euros ($265 billion). Many analysts fear if Greek bondholders start dumping their bonds, it could create a domino effect that spread across the EU, causing the European currency and stock markets to fall even lower.
How We Could Benefit
Even though the U.S. stock market fell yesterday, it could be a beneficiary of the developing European crisis. Many Americans may still be uncertain about our economic prospects following the deepest recession in a generation. When compared to Europe, however, international investors see the U.S. as a haven of relative stability.
The IMF (International Money Fund) has said it is willing to provide limited aid to Greece. This is the first time that the IMF ever has extended its financial safety net to a developed nation within the EU. Financial aid from the IMF is contingent upon the Greeks pledging themselves to a set of rigid fiscal constraints and the readiness of its European partners to step into the fray with their own monetary contribution.
Although most observers believe that the Germans along with their other European partners will relent, a move is afoot to kick Greece and other nations out of the EU that are unable to maintain the required fiscal discipline. The EU compels its member-states to limit their deficits to 3 percent of gross domestic product. Last year, Greek debt climbed to 13.6 percent of its GDP.
The Europeans plan to hold a summit on May 10 to discuss their approach to the solving this growing contagion. Until then, the fate of the Greek econom, along with several of its European partners,will remain in flux.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
