Last week, CNN resorted to psychics, astrologers and tarot-card readings in an effort to predict the economic future. Those of us who don’t commune with the spirit world are more concerned with the Greek debt crisis. One U.S. analyst said that the “downside” risk, if European leaders can’t come up with a bailout deal, “is effectively a financial system meltdown.”
The political situation in Greece is not encouraging. The Greek parliament will vote this week on an austerity plan — which bankers are demanding in order to extend the country further credit — and it is by no means certain that the unpopular cost-cutting measures will pass: “If Greece refuses to accept more austerity measures, the consequences for Greece, the EU and indeed the global economy could be dire.”
The good news, such as it is: French banks have reportedly agreed to a plan to roll over Greek debt. However, Germany’s finance minister doesn’t sound optimistic: “We are doing everything we can to prevent a perilous escalation for Europe but must at the same time be prepared for the worst,” Wolfgang Schaeuble said, invoking the specter of 2008, when “the world was able to take coordinated action against a global and unpredictable financial market crisis.”
Recall that the 2008 meltdown led to the Dow Jones Industrial Average — which had been above 12,000 in June 2008 — falling below 7,000 by March 2009. If Europe dodges the Greek bullet this week, stocks should gain, but the threat of civil unrest in Greece is sufficiently serious that there have been rumors of a military coup.
So while CNN is consulting stargazers and necromancers, I am citing a more mundane prophet:
“The problem with socialism is that you eventually run out of other people’s money,” Margaret Thatcher once observed, and for Greece, “eventually” is now.