The financial news of the week again is about the eurozone and we are
seeing lots of entities come up with lots of possible solutions about
how to solve the eurozone problem. They all of course rest on what to do
about Greece. The problem is, they are coming from the wrong angle.
From STRATFOR’s point of view, Greece does not have a particularly
bright future as a state before the eurozone crisis is taken into
Modern Greece has traditionally been supported by three pillars.
First is shipping. As a culture that is mostly coastal it makes sense
they would be very good at sailing; however, in the age of modern
transport and super container ships, Greece simply can’t compete, and
most of its ship building industry has long ago left for greener
pastures in places such as Norway, China or Korea. The second pillar is
tourism and this continues to be an option, but tourism by itself cannot
support a modern state. The final option and the one that the Greeks
have gotten the most mileage out of is leveraging Greece’s position.
Typically to allow some external power a means of battling somebody in
Greece’s neighborhood. When Greece achieved independence in the early
1800’s that external power was the United Kingdom who used Greece as a
foil against the Turks. Later, the Americans played a similar role
supporting Greece against the Soviets. In both cases massive volumes of
capital came in to support Greece. However, in the post-Cold War era
Turkey is a member of NATO, and while the Greeks might not get along
with the Turks, nobody is looking to use Greece as a military foil
against them. Greece no longer has a regional foe that it shares with
anyone else. The closest might be the Turks again, but only if the Turks
miscalculate their ongoing relationship with Israel or Cyprus and
miscalculate very very badly.
Bottom-line, the various supports that have allow the Greek state to
exist since the 1820’s simply aren’t there anymore and so the path
forward goes like this: Greece is not salvageable. Greece simply can’t
compete unless it is being given a constant, steady supply of capital
from abroad that it doesn’t necessarily have to pay back. And even if
that could be restarted, Greece can not emerge from its own debt load.
It is simply too large. Greece has to be kicked out of the eurozone if
the euro is to survive, but between here and there, first, a firebreak
fund. The EFSF expansion has to happen because if you cannot sequester
the 280 billion euro of Greek government debt that exists outside of
Greece, then you’re going to trigger a massive financial catastrophe
that the eurozone simply can’t survive. And so to prepare for a Greek
ejection, you have to prepare a fund that can handle three things more
or less simultaneously. First, you need about 400 billion euro to
firebreak Greece off from the rest of eurozone. Second, you need about
800 billion euro in order to prevent a wide-scale banking meltdown,
because the day that Greece defaults on that debt, the day that it’s
ejected from eurozone, there will be catastrophic banking collapses in
Portugal, Italy, Spain and France, probably in that order.
Third, the markets will go wild and the state that is in the most
danger of falling after Greece is Italy. Using the bailouts that have
happened to date as a template, any bailout of Italy would have to
provide enough financing to cover all Italian needs for three years.
That comes out to about another 800 billion euro. So until the Europeans
have 2 trillion euro in funding stashed away, they can’t kick Greece
out of the system.