I've always been in awe of Greece. This is the nation that gave birth to Socrates, Plato, and Aristotle. It gave us geometry, the Pythagorean theorem, and the atom. Greece even gave us Cleopatra (and no, she was not Egyptian). And democracy.
How the mighty have fallen.
J. Paul Getty, the famous American billionaire, used to say "If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem." Man oh man, does that describe a little of what is going on in Greece.
A LITTLE HISTORY
When I was in college in the 80's, there was a lot of talk about THE EUROPEAN UNION. What would it look like? Would the countries of Europe be able to give up their national identity and come together as one economic "Eurozone"? Would it actually happen? Well, it did happen. In the early nineties, 28 European countries came together to form the EU. The idea was that the countries of Europe would become so tied together economically that they'd have less reason to go to war in the future. And they'd become an economic powerhouse in the process. A few years later, in 1999, the members of the European Union, or EU as it's commonly known, created the euro as the common currency of its members. France gave up its franc, Germany its mark, and Greece its drachma....all in favor of the euro.
And then there was a party.
TOO MUCH DEBT
Remember Prince....and his song lyric "party like it's 1999"? Well, everyone did. Around 2000, money got cheap in Europe...and Greece...just like it did in the United States. Everyone started paying for things with borrowed money....and we all loved it! And then, like so many examples throughout history, the party ended. And WHAM....credit contracted, real estate crashed, stocks crashed, bonds crashed, people lost their jobs, etc. And I'm talking about Europe!
Back in 2008 or so, we started hearing about the financial mess in Portugal, Ireland, Greece, and Spain...the PIGS as they were affectionately (NOT) called. And Greece was the country most deep in the mud. A few hilarious/terrifying examples:
Greece is now a deeply socialist country. While that's not my cup of tea, if a society is willing to pay for it, it's ok I guess. Only Greece wasn't willing to pay for it. Other countries...or more accurately, the banks from other countries...were providing the equivalent of NINJA (no income, no job or assets) loans to Greece for a number of years and those loans propped up the Grecian lifestyle.
That was then and this is now. And the money spigot's been turned off.
FOLLOW THE MONEY
Like so many things in life, you can see what's happening by just following the money. Greece in 2009 was clearly in dire straits. It could have gone bankrupt. It probably should have. But it didn't.
Because the banks of Europe - think France and Germany - that had lent money to Greece didn't want to see their money go "poof". Remember, the loans to Greece were ASSETS on the balance sheets of the lenders.
The countries of the European Union were in a 'damned if you do, damned if you don't' situation. The EU...in the form of the International Monetary Fund (IMF) or the European Central Bank.... could extend loans to Greece with austerity requirements....that they knew that Greece probably couldn't meet. Or they could decide not to bail-out Greece and watch the banks in their own individual countries fail....because their countries' banks had lent a lot of money to Greece that would then officially never be repaid!
Given the Hobson's choice, Greece was bailed-out with a total of 145 billion Euros to keep it afloat. And that brings us to today.
WHERE ARE WE NOW
Because of the austerity requirements that came with the loan that Greece received, Greece is not having a lot of fun. The country's Gross Domestic Product (GDP) is DOWN 25% and unemployment is running close to 25%, too. Double or triple that number for the young. With the higher debt from the bailout and Greece's lower GDP numbers, the debt to GDP ratio has increased from 120% to 175%. Not a positive trend.
The politics makes it worse. Greece had elections in January of this year and its citizens voted in an even more leftish government than before. Greece is running low on the cash it needs to make payments in May on its loans and its politicians are running around the world trying to drum up support for an extension. Because of Greece's past actions....or lack thereof with respect to not meeting its austerity targets...few are interested in helping (Although Putin from Russia may come in as the savior. Or Antichrist.). Greece's financial situation is so precarious that yields on 3 year bonds are 28%!
A lot can change in a few years. Remember that a lot of Greek debt was held by French and German banks at the time of the Great Recession. Today though, those banks have largely rid their balance sheets of those loans.
And it looks like Greece might default.
The banks don't care so much anymore because the debt is on the EU taxpayers now. Does this sound familiar?
Entrepreneur, financial guy, husband and father of two great kids.