Greece is in the news. The small Mediterranean nation was downgraded by Fitch on Monday and put on Creditwatch by S&P. At issue is the ability of the Hellenic Republic to service its debt – which is denominated in Euros. Since the Greeks don’t control their own currency, they can’t just print more.
Greece is one of the weakest of all the EU members. But because it didn’t enjoy the real estate boom, it’s not seeing that much of a bust. The problem has been the decline in trade and tourism over the past year. If the Parliament can show some resolve on reigning in spending, most observers predict that they’ll be able to muddle through.
The downgrade was a wake-up call for investors, though. The Euro has facilitated business and trade across the continent, and the European economy has widely benefitted. One of the downsides, however, is the loss of sovereignty. Since Greece is so small, they’re reduced to “Blanche Dubois” finance: dependent upon the kindness of strangers.
As a result, when a credit agency measures their finances and finds them wanting, the country is in no better shape than California in managing a fiscal crisis. They can’t print money, and if things get worse, they can’t borrow, either.
The sovereign downgrade illustrates that financial integration has a downside. But is it a Greek Tragedy? Not quite yet.
Douglas R. Tengdin, CFA
Chief Investment Officer
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