It’s all over for Greece. Is it? – Part II By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

April 24, 2015 | Posted by bobbysrinivasan << back to blog

Finally, the crisis is building up in the Eurozone. It is do or die for Greece. If Greece were to leave the Eurozone, an unnecessary rupture will cast long shadows over the future. What and why did this happen?

At the end of 2009 Greece faced two serious problems.

High level of debt beyond what the Maastricht agreement provided for and
Inflated costs and prices that made the country not competitive.

The Eurozone Central Bank responded by providing ample cash flows to Greece on condition that it would take steps to cut the ever increasing deficits and by severely increasing taxes paid by its citizens. In fact the wages in Greece dropped nearly 25 percent. Greece with all its problems, has put up a valiant fight to stay within the Eurozone. If they quit there will be a serious problem of default by both the government and the Greek banks. The creditors to Greece is calling on additional austerity measures, which, if Greece followed their economy will take a further 8 percent drop in growth and the unemployment rate could soar to 30% and beyond. The Greek people in their recent election voted a party named Syriza a completely left wing party who promised to renegotiate annulment of previous loans.

Is there a possibility of a workable compromise? Greek either leaving the Eurozone or defaulting on loans could leave a serious challenge to the entire Eurozone which then could spread to the entire global economy. Is the new party in power ready to co-operate with the ECB to tide over the problem? On the face of it, it doesn’t look possible. Why? Because the party has taken a very hardline not willing to budge from its stand, But what can we expect The people of Greece got fed up with the previous government and so chose to transfer power to totally inexperienced leaders who are emotional and out of touch with reality. They have not seriously thought of the consequences which could upset the entire equilibrium.

We don’t need a crisis now. Some Eurozone economies are waiting to crack. If Eurozone fails because of Greece, it is only a matter of time before some marginal countries may also want to walk out of this alliance. What then is the solution? First patience on the part of Germany is required and all austerity measures suggested to Greece must temporarily be put on hold. The present government in Greece should show clear intentions that they are willing to accept the Eurozone policies of course spread over a longer period of time.

For a trader, if indeed Greece fails, it will be a great trading opportunity by taking short positions in Euro and drive it as low possible against the dollar. The citizens in the Eurozone, who were not in any way connected with the crisis, will find their personal wealth destroyed beyond recognition. When it happens the global consumption will take a big hit and the setting of a new recession. Hell, will look imminent no who wants it.

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