The collapse of the euro and Greece…
By Kostas Stoupas
The collapse of the euro and Greece…
In recent days the exchange rate of the euro, for the first time in the last 20 years or more, fell below 1 to 1.
This portends difficult days ahead for Europe. When “dark clouds” gather over the global economy, international funds seek refuge in the dollar.
In the “mornings” of the information available, the devaluation of a currency helps exports and therefore creates jobs and development. If this were the case Zimbabwe would rival Switzerland and the US in growth.
Of course, this sometimes happens, but usually under conditions that probably do not exist in our case…
Europe is not self-sufficient. It imports energy and raw materials and exports services and finished goods. Imports that the European economy is priced in dollars and with the analysis of the dollar require more euros.
The further appreciation of raw materials imported by Europe is fueling imported inflation. Which makes the ECB’s effort to tame inflation even more difficult.
The ECB has been slow to raise interest rates despite galloping inflation. This is because the economic recovery is fragile and many countries are “suffocating” in debt.
Until now the “pigeons” had the upper hand in the decisions of the ECB. The proposals reinforce the positions of the “hawks”.
The ECB is forced to proceed with significant interest rate increases. This development will increase the chances of an economic recession.
Information about rising inflation and the euro case will make it difficult to find cheap money for states and banks in the European periphery
On the other hand, the reduction of Russian energy imports in Europe threatens to “freeze” households and businesses.
The consequences of this eventuality will be unspecified catastrophic.
The Greek economy survives thanks to tourism and capital transfers from the E.U. and ECB. If the EU countries go into recession, tourist arrivals will decrease. If monetary conditions change, capital flows to our country will also decrease.
In Greece there is the “blessing” that since the debt is “parked” with low interest rates in closer Institutions” we are shielded against the crisis.
More or less they believed the same after the crash of 2008. Two years later bankruptcy followed.
The bliss of predictions…
As long as they remember the forecasts of the “authorities” in Greece and abroad about the economy about a year ago, they could rightfully panic.
Neither inflation nor the rise in energy prices proved temporary due to temporary disruptions to supply chains due to the epidemic.
In the fall of ’21 when inflation for the first time in many years climbed above 3% the prevailing belief was that by the end of the year it had “flattened”…
A few months later, in December, it had reached 5.1% and in May ’22 to 11.3%.
In the US inflation from 5.5% at the beginning of Autumn 2021 went to 7.5% at the end of the year and in June 22 it shot up to 9.1%.
Based on forecasts from a year ago now we should be at the beginning of a long upward economic cycle. Probably the other way around…
It is more likely that we are at the beginning of a long downward cycle.
The prevailing belief is that the predictions were overturned by the Russian invasion of Ukraine. Probably the opposite is happening. The geopolitical tension caused by the “revisionist” forces is a result of the economic and political deterioration of the West.
Bankers and politicians have for many years refused to accept their responsibilities. From 2000 onwards they tried to shorten the time of every cyclical recession in the economy.
Thus they managed to create a series of “bubbles” of which each subsequent one was larger than the previous one. At the same time they have created a growing population of “zombie” households, businesses and states. That is, entities that are unable to cover their loan obligations if interest rates return to some kind of normality.
The “dot.com” bubble of 2000 was followed by the real estate “bubble” of 2008. After 2000 the FED in order to shorten the recession kept interest rates closer to zero than they should have.
After the crash of 2008, because zero interest rates were not enough, Central Banks started their “Quantitative Easing” programs. 2020 saw the emergence of the “Covid-19” pandemic where economies had to “shut down” intermittently for months.
In recent decades in the West they have been handing out literally allowances and “sea loans”. Borrowed prosperity created “bubbles” and increased inequality. Inequalities have caused social and political rifts.
On the other hand, unlimited prosperity and “free money” have eroded the character of Western man.
Government debts everywhere have soared while a large portion of the population has become addicted to benefits and refuses to return to work.
Even bankrupt countries like Greece managed to increase public debt by 30-40 billion. Italy follows close behind with a debt of around 150% of GDP and France with a debt of over 110%. The rise of the far left under Mélenchon and the far right under Le Pen leaves little room for fiscal discipline.
The poor planning of the energy transition has reduced investment in the development of new hydrocarbon deposits and this has resulted in a reduction in supply faster than a reduction in demand.
Russia’s invasion of Ukraine worsened the situation. The war in Ukraine seems to be the first link in a chain of geopolitical conflicts. This cycle of upheaval is just beginning, and it is not unlikely that it will culminate in a great showdown between East and West for the distribution of global spheres of influence.
Greece, due to the known differences with Turkey, has increased chances of suddenly finding itself in the hot zone of these “hot” developments. Even a “heated” showdown in a few days could have consequences for the economy that are felt for years…
Hard times…