How Market Sentiment Moves With the Greek Debt Crisis

A couple of hours south of Kaikoura — and the most famous crayfish picnic tables on the South Island’s east coast (Nin’s Bin) — you’ll discover the fastest growing wine region in New Zealand; 80 vineyards sprawling across more than 1,200 hectares of picturesque plantings…

Alas, Fellow Reckoner, there are far less important things to worry about than shellfish and Chardonnay. So, let’s get right to them…

Global markets rebounded yesterday after what had been the steepest selloff of the year on Tuesday. The Dow clawed back about a third of the previous session’s 200-point loss. Indexes in Europe were up too with stocks from the Thames to the Rhine gaining between a half and one percent after Tuesday’s two and three percent losses. For its part, the euro edged higher too…as did oil…and gold…and the outlook for a particularly pesky eurozone financial deadbeat…

The official line when markets (any market, it seems) rally is “optimism surrounding the [latest] plan to solve the Greek debt crisis.” The name of the rescue package changes from bailout to bailout, of course, as do the conduits through which other people’s money funnels, but the general thinking is always the same… “the same” being, oddly, “this time it’s different.”

Predictably, the converse is also true. Whenever markets are in the dumps (as they were on Tuesday), Greece finds itself the convenient whipping boy of elsewhere investors.

How is it, Reckoners must be wondering, that global market movements seem to hinge on the fiscal vitality of a nation that kicks in just 2.4% of Europe’s total GDP? Surely there are Black Swans with far bigger wingspans to concern ourselves with, no?

By the time you read these words, news about the latest, €130 billion Greek debt deal will be fish and chip paper here in Australia. Old news, in other words. The conjecture and guesswork will have been settled, one way or another. Markets will have responded accordingly…and neckties on the television will be reading their cue cards and acting like they knew what was going on all along.

But, as our colleague Dan Denning explained in these pages recently, “Greece isn’t about saving Greece.”

As usual, there’s more — much more — to the story. So, what’s at stake here?

“The only reason something so small and insignificant could matter so much,” observed Dan, “is that it matters in a way no one is willing to say.”

Do tell, Mr. Denning…

“It’s about the subversion of sovereignty and democratic processes by removing decisions from people and giving them to trans-national financial elites. It’s about preserving a global system that’s based on the accumulation of debt and growing government power because there are two groups of people who benefit tremendously from that system, even if most people don’t.”

But isn’t the rescue package about debt reduction? Isn’t it about maintaining the integrity of the euro currency and viability of the eurozone itself?

C’mon, Fellow Reckoner. This isn’t our first Zeibekiko. We’ve all danced these steps before.

Not only is the euro better off without Greece, Greece is surely better off without the euro too. It’s a mutually-abusive, hate-hate kind of relationship; the type you wouldn’t want even your closest frenemy to suffer through.

“With its own currency,” observed Dan, “Greece could default, devalue, inflate and start over. Argentina did it in the last 10 years. It’s not rocket science.”

So too did nations from Austria to Zimbabwe (and those starting with almost every letter in between) default during the past century. If the likes of Guyana and the Solomon Islands can manage it, then why not Greece?

Moreover, had Europe simply cut the Zorbas loose when they strayed from their expressed commitments, as outlined under the Maastricht Treaty, the EU might have maintained some credibility in its own fiscal responsibility.

No. Saving Greece is not about saving the euro. Nor can a plan to reduce debt to “only” 120% of GDP…over the next eight years…be taken seriously as a motivation for keeping Greece tethered to the union.

Concludes Dan, “This is simply the latest example of corrupt government operatives colluding with the financial elite to steal money, liberty and big chunks of ‘the pursuit of happiness’ from ‘we, the people.’”

(If you missed Dan’s complete and insightful write-up, you can read it here.)

But are you really shocked, Fellow Reckoner? Even mildly surprised?

Whichever way markets go this morning — and tomorrow…and for the foreseeable future — one thing is certain: Those who write and enforce the rules are not in the habit of leaving unwell enough alone. Capitalism — both the creative and destructive forces therein — must be contained, controlled and contorted, they contend.

Anything to prevent the insiders from becoming the very outsiders they affect to serve.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning