Global commodities markets seem little concerned about a potential end of the eurozone as we know it. They just keep rising. Maybe it’s because Greece is a tiny economy, and many far larger economies around the world, notably China for commodities, are continuing to rebound.
Commodities across the board are marching onward and upward, apparently oblivious to Greek indebtedness, concerns about which have been plaguing markets for months. In the end, global growth—as is strongly reflected in the commodities markets—is one sure-fire way of dealing with whatever fallout there may be from what will either be a bailout of Greece or a restructuring of its debt.
To put things in context, Greek GDP is about $340 billion, which is about what the U.S. government is borrowing every three months. Fears of a default on Greek debt, which is somewhat larger than its GDP, have erased more than $1 trillion of global equity market capitalisation, but Greece’s total indebtedness, even when combined with other PIGS, is a small fraction of the global bond market. Keep your eye on the big things, like strong global growth and accommodative monetary policies, since those are likely to overwhelm the Greek debt situation.
We love the GDP perspective above. It’s true, Greece is a small economy. Indonesia has a far larger GDP, at $510 billion, and is rebounding strongly. Would the world be so concerned about bailing out Indonesia if it were in a financial crisis? Maybe from a humanitarian perspective, but it wouldn’t be risking the economic health of other nations to do so.
Thing is, from a global growth perspective, Greece could have a crisis and other nations could compensate. If only Europe would cut the nation loose, thus removing a huge source of uncertainty regarding its own European economic and financial prospects, then the much of the uncertainty would be over.
We continue to believe money will be better spent providing humanitarian support to a Greece in crisis rather than spent trying to prolong Greece’s broken system. Let the nation fall into crisis, then soften the blow with aid, and fix the system from the ground up. Everything else is just a short-term band-aid damaging the rest of Europe and setting us up for an even worse Greek crisis in the future.
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