Greece is burning and nobody cares

About Latest Posts Motley Fool StaffThe articles listed on this page are compiled by our team of Foolish Writers and …

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Greece is burning. It sounds so sinister, so ominous. When you find out why it's burning, it becomes a tragicomedy, writes The Motley Fool.

When you find out why it's burning, it becomes a tragicomedy. The Greek government — led by unelected economist Lucas Papademos — promises to slash the safety net of many Greek citizens for a big sack of bailout money. Ordinary Greeks, whose futures are being mortgaged, are very angry. Things burn. Then everyone goes home and waits for the money to arrive.

The process repeats with such frequency that a lengthy Wikipedia page has sprung up to catalog each outburst, hence the tragicomedy. And why shouldn't the country erupt in flames every so often? The country is a tinderbox with half its young people unemployed and 20% of the broader populace jobless.

Greece has never been much more than the first domino. One is all you need, and few of Europe's dominos are stable at the moment. How many fall, and how far the chaos spreads, is not something anyone can predict with accuracy. But this repetitive charade of punishment and protest has done nothing to steady the pieces. At some point, European leaders will have to decide whether unity is more important than stability.

Lined up and ready to fall
More important issues have been pushed to the back pages by the struggles of Greece, a small rocky nation of professional tax dodgers that contributes about as much to the global economy as the racehorse Black Caviar.. Take the upcoming French elections. Nicolas Sarkozy may lose badly. With four major candidates in the running, Sarkozy is polling second, 8 percentage points behind a politician once mocked as "Mr. Pudding."

The threat is so dire that German Chancellor Angela Merkel will actively campaign for Sarkozy ahead of April's vote. This international political alliance has sparked a countermovement, with Francois Hollande — Mr. Pudding to you — stumping for Germany's anti-Merkel Social Democrats and lending his support to Spanish Social Democrats as well.

The Merkel-Sarkozy (or Merkozy, if you prefer) alliance has been crucial to a unified EU. Despite cultural and social differences, Merkozy have moved mountains to bring the EU closer together. Already this year, a fiscal stability treaty has been approved, further empowering Europe to directly influence its member states' economies. The French government will not ratify the treaty until after April's elections, and Hollande has gained popularity in part because he refuses to do so. If France rejects the treaty, there's little reason for other member nations to uphold it. But Merkozy's fiscal austerity has done little to fix the EU's problems, so perhaps there's little reason to continue down that road.

It's all downhill from here
This Wednesday will offer critical information on the state of the eurozone economy. Fourth-quarter economic estimates for eurozone nations will be released then, which may well corroborate earlier predictions that the region is sliding into recession. Other indicators bear out this belief. Eurozone retail sales fell during the holidays. German factory orders plummeted. EU-wide unemployment rates are testing heights not even reached during the last recession.

Country

Total Unemployment, October 2009*

Youth (16-25) Unemployment, October 2009

Total Unemployment, December 2011

Youth Unemployment, December 2011

France 8.3% 24.7% 8.2% 23.8%
Germany 7.3% 11.4% 5.2% 7.8%
United Kingdom 5.7% 19.4% 6.1% 22.3%
Spain 16.7% 39.8% 20.6% 48.7%
Italy 6.9% 27.2% 6.9% 31.0%
Portugal 9.8% 25.7% 12.0% 30.8%
Ireland 10.7% 26.5% 13.0% 29.0%
Greece 8.7% 27.4% 17.4% 47.2%
All EU 8.0% 21.1% 8.5% 22.1%

Source: Eurostat via Google Public Data. Seasonally adjusted. *October 2009 represents highest unemployment rate in the U.S. during current period.

Many Europeans may not have noticed the slide. The EU's anemic GDP growth rate collectively nudged above 1% just once in the past decade and suffered a shallower plunge by far than the United States in 2009. The EU recession has been one wrong step away for years. Now that a recession is imminent, the effect on global commerce might be more of a glancing blow than a knockout punch.

Endgame
So what comes next? The long-term consequences of a possible Sarkozy defeat are uncertain. Events in France could cascade across the continent until leaders decide to emulate the evident success of American stimulus efforts instead of tightening the austerity vice. Or little may ultimately change. Political rhetoric rarely survives whole once the heat of campaigning gives way to the reality of governance.

Whatever happens, the EU is in no shape to be the engine of future global growth. Its birth rates are too low to support population expansion. Abysmally high unemployment isn't likely to encourage immigration. The economy may face recession for a period of time or bounce back toward mediocrity. The consequences of systemic unemployment at this scale take years to fully play out.

The markets don't really care about any of that for the moment. Many Greek stocks have bounced to the moon since the start of the year, with National Bank of Greece (NYSE: NBG) up 94% and DryShips (Nasdaq: DRYS) up 58%. It may be many months before the full measure of Europe's efforts can be known, but investors can still try to make that dead cat bounce.

Global markets might fall when Europe accepts its harsh reality, but probably not for too long. 1997's Asian Contagion dropped the Dow 1,100 points in October from highs set that summer, but new records were set by the following February. The Mexican peso crisis offered barely a speed bump. Russia's 1998 default set the Dow back all of four months before it resumed its march toward five-digit territory. If Europe had followed this familiar script, the Greek crisis would have been resolved a long time ago, quite possibly with fewer riots and less extended pain.

Granted, the eurozone has greater global economic importance than did the Asian nations, or Mexico, or Russia. Things may decline more sharply than most expect. But the eurozone has been more a rusty machine cranked by — and feeding into — Germany, and less a long-promised engine of continent-wide economic growth. If one of its many gears pops out, we might not notice as much as hysterical headlines might have you believe.

Today, Greece burns and the market celebrates. Maybe the endgame is finally coming. We can only hope.

The Coming 2012 Market Crash? Markets are nervous. Investors are worried another GFC will wipe out their savings, yet again. Yet no one is telling you the greatest threat to your wealth right now. A new report could save you hours of heartache, and thousands of dollars. Get Read This Before The Market Crashes for FREE for a limited time.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »