Looking Ahead as Greece Prepares for the "Mother of All Strikes"

After a spectacular showing last week, stock markets have once more succumbed to spasmodic bouts of deluded optimism punctuated by frightful moments of self-loathing.

It’s good to see them back to their old, bi-polar self again.

Almost half of last week’s 541-point gain was wiped out in yesterday’s session alone when investors recalled, suddenly, that Europe is still broke; a cold, hard reality that had apparently slipped their minds.

“Stocks worldwide were up big time yesterday,” we wrote after one particularly showy single-day rally last week, “mostly buoyed by news that the politicos in Europe had ‘renewed their commitment to talk about trying to eventually come to an agreement’ about how to fix a problem they themselves caused and did not see coming. Or something like that. Bravo.”

Don’t buy it, we cautioned, remembering Eric Fry’s words of wisdom:

“Bankrupt entities tend to go bankrupt,” said he. “Greece will default…eventually.”

“And with it,” your editor added, “will follow a few other chain-linked lemmings. Maybe that list will ‘only’ include an assortment of other PIIGS’ rinds. Maybe it will include the euro itself. Time will tell.”

Well, what a difference a week can make. Time is telling, indeed. This morning we woke to learn of the predictably worsening situation in Greece, Europe’s poster child for hopeless insolvency. Reported one newswire:

“Greek ships were harbored and garbage rotted in the streets of Athens on Tuesday as angry workers built momentum for ‘the mother of all strikes’ expected to bring the country to a halt in protest against a new package of tax hikes and wage cuts.”

The “mother of all strikes” is due to begin, at the behest of unions representing roughly half of the country’s 4 million workers, on Wednesday. It is scheduled to last just 48 hours, although we can hardly imagine protesters punching the time clock on Friday, right in the middle of what would otherwise be a sweet, 5-day weekend. Always keen to get on with the job of getting off the job, some workers have already begun downing tools; rubbish collectors, journalists and port hands among them. And can you believe this, Fellow Reckoner? Tax officials (tax officials!) are getting in on the inaction too. Some have even been spotted in recent days not stealing from people!

Of course, without access to tax “revenue,” there’s no way the Greek government can make good on the many and varied welfare promises it made to all those people pretending to work. How can a state redistribute stolen property when the thieves themselves go on strike? Short answer: It can’t.

Ahh…Poor Prime Minister George Papandreou. He’s caught between the rock of demands from international lenders on one side and the hard place of social unrest at home on the other. Tough luck, Georgie Boy. That’s what politics is all about; promising more than you can deliver, breaking most or all of those promises and then dealing inadequately and inefficiently with the consequences. It was right there on the job application. It’s part and parcel of the whole scheme, a scheme that leaves Greece — presently — and the rest of the welfare states — eventually — out of pocket and out of luck.

It’s easy to make fun of Greece, of course. That’s why we do it. Plus, we’re looking forward to seeing the market there collapse. We haven’t had a cheap vacation to the islands in years. Too many cashed-up flashpackers from the other PIIGS pushing up prices. Thankfully, they’ll get theirs too.

Back when the euro was introduced, everybody thought they could skim a little off the top. Spanish shopkeepers larded their prices. Italian politicians promised their workers more benefits than they were worth. The Irish bought bigger houses then their budgets allowed for and the Portuguese…well, they were in on it too, spending their way to a combined debt (government plus corporate plus household) equal to 363% of GDP and quietly hoping their stronger euro cousins to the northeast wouldn’t notice. The whole thing got out of hand, in other words. Now, the Mediterranean markets are begging for a correction…and we’ll be happy to see it come to pass.

For its part, Greece will likely be the tip of the iceberg. With a GDP of approximately $320 billion, the Greek economy is less than one quarter the size of Spain’s ($1.4 trillion) which, in turn, is only about two-thirds the size of Italy’s ($2.1 trillion). France weighs in at $2.65 trillion. Germany stands at $3.3 trillion. All are in trouble.

Just this morning Standard & Poor’s downgraded 25 major Italian banks and financial institutions, citing renewed “market tensions” and lower economic growth prospects. Meanwhile, Moody’s yesterday warned it may “slap a negative outlook on France’s Aaa credit rating in the next three months if the costs for helping to bail out banks and other euro zone members stretch its budget too much,” according to Reuters.

To where does this debt-sodden path lead us, Fellow Reckoner? “No man is an island, entire of itself,” wrote the English poet, John Donne, “Each is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less.”

The passage, of course, is taken from Donne’s “For Whom The Bell Tolls”…and as we recall, it tolls for thee.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning