Greece Is Doomed (but There’s A Small Chance It Could Be The Investment Of The Decade.)
I’m from Ireland, born and raised. That’s why I hate the euro with a burning passion.
I feel way more strongly about the euro than any normal person should feel about a boring currency arrangement.
I got to see the whole thing play out in person, you see. It was a tragedy in three acts.
Act one: As soon as Ireland joined the euro in 2002, the economy went bananas. We didn’t realise what was causing the boom at the time. But what was happening was this: the single currency allowed German and French banks to pump hundreds of billions of euros into Irish banks. These billions financed the Irish property market.
For six crazy years, Irish property became the hottest asset in the world. The Irish economy soared along with it. By 2007, Ireland was the 8th richest country in the world.
Act two: When the financial crisis hit in 2008, the Irish banks were up to their neck in loans to property developers. When the property bubble burst the developers couldn’t pay the Irish banks, and the Irish banks couldn’t pay the German banks.
At around this point the European Central Bank threatened to crash the Irish financial system by withdrawing its support for it, unless the Irish taxpayer agreed to bail out the Irish banking system. The Irish government caved and added all the banking system’s bad debts to Ireland’s national debt, which added up to about 40 billion euros.
Act three: This last part is really shameful.
As I’ve said, the people of Ireland (and Spain and Portugal) were forced to take on massive debts by the rest of the Eurozone.
And as you’ll no doubt have heard, the Greeks are in the middle of some tough negotiations to get their own debts forgiven.
So you’d think that in those negotiations, countries like Ireland and Portugal and Spain would be on the side of the Greeks, right? Because if the Greeks were to get some relief on the debt they owe, then maybe the Irish and Spanish and Portuguese would be next.
That’s not how it’s happened. It turns out that the politicians from Ireland Spain and Portugal are the biggest opponents of reducing Greece’s debt.
Why is that? It’s because they’re politicians, and politicians are out to save their own skin first and foremost.
They figure that if the hard-left party which is in power in Greece gets a good deal on its debt, then the hard left parties in their own countries will throw them out of power. And they’re probably right. Gerry Adams, the leader of Ireland’s most radical party, went over to Athens to “show solidarity” with the Greek government last week.
That’s why Greece is in so much trouble – it doesn’t have a friend left in Europe. The rich “core” countries are sick of bailouts, and the politicians in the other peripheral countries don’t want to get thrown out of power.
So that’s the bottom line. Greece is all out of friends in Europe. It’s going to have to give the Europeans every single thing they’re asking for, or leave the euro.
What’s the opportunity?
Greece might give into all the Europeans’ (long list of) demands so that it can stay in the euro. If it does that, you can expect more mini-crises in the future. Greece will have to go to the brink over and over again in exchange for more bailout funds.
However! Greece might still leave the euro. The Europeans are really playing hardball. Greece might decide that it just can’t accept the Europeans’ demands, and leave.
So what’s the investing angle? Well, Greece is about the riskiest market in the world right now, whether or not Greece decides to leave the euro.
If Greece stays in euro, its economy will probably stay depressed for the foreseeable future. If Greece leaves the euro, its economy should recover more quickly… but only after a period of chaos which might be enough to completely tear the country apart.
There’s no “safe” way to invest in Greece. But fortune favours the brave! There’re plenty of investors who’ve made a killing by buying up stocks in the depth of a crisis. The MSCI index of Russian stocks has generated a 15-fold return since the crisis there 1998. And the MSCI Argentina index has generated a tenfold return on your money since the crisis there in 2002.
An investment in Greece could either go to zero or to the stars. Which way do you see it going? Would you have the nerve to invest there? Let me know at firstname.lastname@example.org
Until next time,