Call Hercules

Is the IMF bailout just another Greek myth?

In one of the famous Labors of Hercules, he had to defeat the Hydra, a many-headed serpent. Every time he cut one off, two more would grow back in its place.

Debt guarantees are like fighting this beast with a sword. Every time a plan is cobbled together, two new problems emerge. The latest idea is to come at the problem with overwhelming cash–€30 billion in guarantees. But this just kicks the can down the road; it attacks the Hydra with a bigger sword.

There are really only three solutions. One is default. That would cripple the European banking system, and close Greece off from fresh capital for a decade. Another possibility is exiting the Euro and devaluing the currency. That’s effectively a default on external debt. But you can’t devalue your way to prosperity. Zimbabwe tried. The real solution is to adopt significant austerity measures. This takes serious leadership and social solidarity. It’s hard to see how Greece, with its legacy of default and social unrest, could do this.

In the end, Hercules used the Hydra’s own poisonous blood to stanch each wound, preventing the heads from coming back. A Greek default means the poison of bad credit will reign in spending and cut living standards. Not the way they’d like, though. Any way you cut it, Greece needs a hero.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T18:37:56+00:00 April 13th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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