Yet another Greek tragedy is playing out in economically distressed southern Europe.
Greek Prime Minister Antonis Samaras failed to win support for his presidential candidate.
So citizens will head to the polls again, this time 18 months ahead of schedule.
With the "extreme left" party currently in the lead, there's more than political posturing at stake.
Volatility is sure to rise, and the pressure on ECB President Mario Draghi to "do something" will grow stronger than ever.
It feels like "déjà-vu all over again" as Europe continues to try and find ways to remain unified.
While the squabbling continues, we've found the best way of creating investment opportunities...
Where Greece Stands Today: Promises, Promises
On Monday, Dec. 29, 2014, Greece's prime minister announced on live TV that parliament would be dissolved and elections held on Jan. 25.
That caused Greek 10-year yields to jump 1.3% (to 9.5% yields) and the benchmark stock index to swoon 11% intraday as the market digested this news. The euro dropped to 1.215 against the U.S. dollar, its lowest levels since the depths of the mid-2012 European sovereign debt crisis.
Jitters are being felt across the European Union as the political uncertainty is seeping into already grim economic expectations.
After all, the 2012 Greek debt exchange was the largest debt restructuring in the history of sovereign defaults.
And since the 2008-2009 financial crisis, Greece, it seems, has stumbled from one economic repair patch to the next, and it's not hard to figure out why.
Thanks to outlandish promises, the poll-leading "hard-left" Syriza party could well form the next government.
What goodies are party leader Alexis Tsipras promising?
- An end to austerity and the bailout agreement with the European Union
- Renegotiating repayment terms on loans from Euro member nations
- Increasing the minimum wage by 50%
- Inflating the public sector through hiring and by boosting salaries and pensions
- Providing free heating and electricity for Greece's poorest
Why Tsipras hasn't promised everyone a free luxury vacation home on Santorini, I'm not entirely sure...
Here's the thing...
Greece has been here many times before, most notably after years of falling purchasing power due to World War II and a civil war from 1945-1949. That reversed during the "Greek economic miracle" between 1950 and 1973.
Greece's economy enjoyed average annual growth of 7% during those years, with rates surpassing 10% during the 1950s. A large contributor to this "miracle" was a dramatic devaluation of its currency, the drachma.
Purchasing power and wages took a big hit, but that drastically discouraged suddenly much- pricier imports and encouraged local substitutions, and exports soared as their costs to foreigners plummeted. The economy adjusted, then quickly recovered as it was once again allowed to regain competitiveness.
Obviously, Syriza is overpromising good economic times and Greece remaining within the Euro currency union. But if they win, they're likely to underdeliver, as they haven't explained exactly how they'll achieve the new "Greek economic miracle."
The truth is that surely they can't deliver as promised.
Greece's Troubles Are Nearly Insurmountable
Here's why the "Greekovery" simply hasn't happened so far...
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I think you meant to say that German and French banks can't afford to NOT let their leaders cave to Greek demands. Saying that they can't afford to LET them cave to Greek demands means that you're calling on the EU to call Greece's bluff. This contradicts your contention that those banks simply cannot afford a Greek default unless the EU bails out those banks. And, of course, why allow the sovereign default in the first place if you are just going to bail out the creditors anyway? The sovereign default would have negative effects in the debt markets far beyond those felt by the institutions who were directly owed the debt. As for a Cyprus style bail-in, that ain't gonna happen. Cyprus was one tenth the size of Greece and was , therefore, systemically UNimportant. I believe that we are actually on the same page here. The EU saying that Greece is no longer systemically important is nonsense. They wouldn't have put something on the order of half a trillion dollars(u.s.) into a basket case like Greece in the first place, if they couldn't afford to let them default. Buy the Greek fear.
Thank You,
Chris Hedlund.
The problems in Greece are typical of countries that have been ruined by left wing governments.
After people & companies get used to gov't handouts, they refuse to cut back when the country can't keep paying for it all.
So the left wing gov't says opposition parties or creditors prevented them from delivering the handouts, but if you elect us again we'll find a way to give you everything you want.
So they get re-elected over and over and sink lower and lower. Greece, Venezuela, Argentina, Spain, Zambia, etc.
One possibility,too. is that Greece will turn far enough left to become buddies with Putin. The Russians would love to gain a naval base near Greece and they could offer financial help were it not for the current oil slump. This story may develop as the oil market firms up,allowing Russia to make overtures. Stay tuned for this one.
Interesting comment by Harry. Going to put that on my list of things to keep an eye on.
After all, Putin needs to shift Russian public's focus away from the economic mess he has created.
The problem is that analysts are watching the numbers and loosing the humans.
Greeks have lost jobs, proper health care and education while being taxed over
50% from previous years resulting to more than 50% income lost and drive them to povetry.
So Tsipras promises sound like an oasis in the desert and has many chances to be elected with a surprising victory of close to 40% and dont blame the Greeks for that.
They are being forced to vote him as corruption in Greece has been raised all these years of austerity and only friends of the two parties governing greece are still doing business. German and French Banks should wait many years to get back their money if Greek economy does not show signs of growth the next years. ECB has the key for success on this project by buying a portion ofGreek debt and reconstructure it to help the economy.