Why all the hullaballoo?

The financial media discusses and analyzes Greece constantly.  With each bit of new news there is yet another commentator claiming a solution, or disaster, is at hand. Given Greece’s economy represents just 2% of the Eurozone, one could rightfully ask, why all the hullabaloo?

Ned’s Notes offers this tidy summary:

• The Greek financial crisis began in 2009 when it violated the Eurozone’s budget deficit rule by 4X. Their situation has progressively worsened.
• Greece has a $1.8B payment due to the IMF on June 30^th. Missing that would mean default and perhaps expulsion from the 19-member Eurozone economic bloc.
• By piling debt on top of debt somebody described Greece’s actions thusly: “Borrowing money to pay interest on money you can never pay back.”
• The Greeks have a $242 billion economy, about the size of Connecticut orLouisiana.  With national debt of $360 billion Greece has the second highest ratio of debt to GDP in the world (180%). The Eurozone limit is at 60%, twenty times higher than in 2009.
• US GDP and debt are roughly equivalent at ~$18 trillion.
• The retirement age for a public sector employee in Greece is 56.3. This is lower than the rest of Europe and over 5 years less than the US at 62 (and full retirement not till 66/67).
• Since gaining its independence in 1829, Greece has been either in default or in arrears in its debt payments 51% of the time.
• Five years ago a Greek default might have caused real financial harm.  Now 80% or more of the outstanding Greek debt is held by public institutions, limiting private losses.

Ned’s Notes Takeaway: The hullabaloo is not about Greece. It’s about the unknown (and consequently feared) consequences for Europe should Greece default and exit the Eurozone, aka a “Grexit”.  Specifically it’s about the impact on the weaker financial members of the Eurozone such as Italy, Spain and Portugal.  European negotiators are standing firm with Greece out of fears of such contagion, while Greece’s leaders refuse to budge because home constitutents demand it. Whatever the outcome the short term effects are likely manageable, it’s the longer term impact that remains a wildcard.