The European Circus
It is still amazing how the stock market reacts to all of the news coming out of Europe. The reaction from all of the Greek news is somewhat comical. Why in God’s earth would the Greek government not default? It is absolutely in their best interest to simply go bankrupt. They have milked the European Central Bank (ECB), the International Monetary Fund (IMF), and the American tax payer who is the largest contributor to the IMF for all they can. If the Greek government goes bankrupt at this time they can create their own central bank and begin to print the Drachma once again.
Believe it or not, a new currency that is not tied to all of the other nations in the European Union would boost tourism in Greece. It would even boost olive oil sales. Just think about all of the business that the country has lost over the years because of the Euro currency. If you ever visited Greece in the 1990’s you know how cheap and inexpensive it was to visit a beautiful country. The Euro absolutely ruined that country and now Greece looks to be ruining the European Union. The bottom line, if you cannot pay your bills, bankruptcy is the only real option. The foolish move for the Greek government would be to continue receiving bailout money and remaining part of the Euro-zone.
Should Greece leave the European Union (EU) it would be likely to see Portugal, Ireland, and Belgium flee the EU as well. What would really be the carrot that would keep these countries in the EU? They know that they are all dead broke and the money to keep this failed science project together is not available by investors. The only way that the European Union could be bailed out would be to start printing money the way the United States does. So basically, the European Union will begin to monetize their debt following the model set by the Federal Reserve.
Spain, Italy, and France are the real problem nations in the European Union. These countries have a lot of debt that could be considered too big to bailout. Again, the only way to bailout these countries will be to print and create more money out of thin air. When a central bank does this there will be repercussions and it is usually in the form of inflation. Today, the European Central Bank lowered their benchmark interest rate by 25 basis points to 1.25 percent. The reason why rates where even at 1.50 percent in the first place is because inflation was hurting these countries. Now inflation will begin to tick higher again over the next few months making goods such as energy more expensive. This game of hot potato with money just gets more comical by the minute. Traders and investors can expect to hear more news and fiscal game playing out of Europe each and every day. Welcome to the European Circus.