“Do you want to sign up to new European austerity, or should we tell them where to stick it?”
Good for George Papandreou, Greece’s prime minister, putting the bail-out plan to a public vote.
Of course, he didn’t present the choice facing Greeks in quite those words. But that’s the question nonetheless. And, frankly it’s the right question. I said as much in last Friday’s Right Side
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For the Greek premier, this referendum is “a supreme act of democracy and of patriotism”.
There’s a word that won’t go down well in Brussels. The dreaded ‘D’ word could spoil the latest euro-fudge before its even been finalised.
Unwittingly Papandreou has given the public the means to do the right thing – raising the possibility that a euro member could soon exit the monetary union.
In The Right Side, we’ve already been thinking about how the break-up of the European currency could affect us. But it’s even more important now.
The idiots in Europe have completely misread the situation and just how significant Greece is. Now I think they’re starting to figure it out.
Why Greece is significant
What does a box of matches cost? Say, 20p? Now if the price doubles to 40p, then who cares? The price is still insignificant.
And that’s how the Eurocrats wrongly view the Greek problem. So what if Greek debt doubles? Such a small and insignificant nation – “We can always bail out the tiddler” is the assumption.
Well yes they can. But only if that tiddler accepts your terms. And if they don’t, that’s very significant!
It’s exactly this kind of hubris that could speed a major breakup in the Euro. But then, hubris has been part of the Euro project from the start. And over the next few months, we need to question every assumption that governments in Europe are making.
As for the Greeks – who knows how they will vote? Ultimately, citizens will have to decide whether they’ll be better off inside or outside the union.
Government employees will come down on the side of the status quo. Except for the most enlightened, they won’t want to rock the boat. Ultimately they’ll probably think that a bit of belt-tightening will be better than a ‘system reboot’.
Many retirees will probably feel the same… the news rags are full of stories on how Greek retirees are onto a good thing. And anyway, people hate change. So there’ll be a lot of voters who will accept the new Euro plan.
But then there’s the other lot. The guys that could profit from a newly invigorated Greece unencumbered by membership of the euro – taxpayers for starters.
Of course, in one way or another, most Greeks are taxpayers. And dumping those burdensome eurobond debts will be a boon, not only for them but for the next generation too.
To justify it they’ll say to themselves: “Well, that euro idea was a mistake. It was foisted on us by the politicians. All it’s done is enrich the members of the north. Keep your debt and clear off!”
So if this, or a new crop of parliamentarians can rid Greece of this debt (or at least a large portion of it), then that’s going to be appealing.
And given time, forgiveness will follow. A cheap drachma will help; soon enough the Germans will be basking in the Grecian sun and lapping up cheap Greek exports.
So Greece will be better off out of the euro. In particular businesses and individuals with debt could be big beneficiaries.
Greece could be just the first step in the euro break-up
James McKeigue explains .
In the long-run, this may well be what Greece needs. But for Europe there’s a dangerous precedent being set. If Greece can walk away, then so can others… leading to a break-up of the euro.
That’s why yesterday saw investors dumping the debt of other peripheral nations. Andrew Roberts from RBS says that Italy’s debt stress is “dangerously close to a level that could cause pandemonium in financial markets”.
We’re told that the Greek vote will come in January. But the markets aren’t going to wait that long. That means we need to be prepared for anything in the meantime.
As I write, European stock markets are rallying. That’s often the way after a rout like the one we saw yesterday. If you haven’t got a decent cash position in your portfolio (I’m looking at around 25% at the moment), these sorts of relief rallies are often a good time for taking a bit of cash off the table. We are likely to get some opportunities for that cash later.
As euroland deteriorates, the ECB will have to start to consider printing money to rebalance the various economies. I don’t know how they’re going to clear this with Germany, but someone’s going to have to change their tune. And money printing means you’ll want some gold.
I think around 10% of your portfolio in gold should provide a decent hedge if the worst comes to the worst. Did you take a look at that gold fund I showed you on Monday?
Choose your investments wisely
Whatever you do, stay defensive and stay safe. And keep reading The Right Side. I’ll keep looking for intelligent ways that aim to help you to protect your wealth and profit in the months ahead.
There are threats everywhere in the markets right now. More than ever, you need to think smart and stay informed using the right kind of market insight. You need to be one step ahead of mainstream thinking.
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