It’s incredible when you think about it.
Greece is one of the smallest countries and economies in the world. Its population is 11 million people out of the 492 million in the combined European Union countries, and compared to 312 million in the U.S., 1.3 billion in China, 1.2 billion in India.
Its economy is 32nd in size globally, with annual GDP of only $0.3 trillion, compared to $63 trillion for the world as a whole, $16.2 trillion for the combined European Union countries, $14.5 trillion for the U.S., $6 trillion for China, $5.5 trillion for Japan, and so on.
Yet for almost two years tiny Greece has had the entire world trembling in fear every few months, world markets in confusion, and world leaders rattled. For the last several weeks the threat from Greece has been a banking and financial crisis in Europe that could throw the entire world into recession, as Greece procrastinates and flip-flops on how it will handle the latest offer to bail it out of its debt crisis.
If it were a military threat from such a tiny country, the overwhelming military strength of the rest of the world would make it a joke.
But its economic threat has the rest of the world’s overwhelming wealth and economic power helpless to do anything about it?
The fear and confusion can be seen in the action of global stock markets.
Global markets rallied in the strongest October in years as the latest eurozone rescue and bailout measures were anticipated, and spiked up even further just over a week ago when it was announced that eurozone countries had agreed to the plan.
But markets suffered a big two-day plunge on Monday and Tuesday of this week when Greek Prime Minister Papandreou said Greece might back out of the deal, that he wouldn’t be able to decide until he puts the plan to a public referendum in December.
On Wednesday and Thursday markets rallied back strongly when rumours hit the wires that Papandreou might be back-tracking on his demand for a public referendum. On Thursday he did back-track, announcing there was no need for the referendum after all. It was a surprisingly fast flip-flop given that he had only proposed the referendum on Monday and as late as Wednesday evening was in Cannes still trying to convince German and French leaders of the need for a referendum.
Now going into the weekend, Greece has markets and world leaders back in fear mode. Papandreou has called for the Greek parliament to meet Friday night for a confidence vote on his government, which rules by the slimmest of margins after defections over his handling of the bailout agreement.
Experts say if Papandreou does not survive the confidence vote Friday night an early election in Greece would have to be held, which would mean several more weeks of uncertainty that would allow the financial panic to potentially engulf already teetering Italy.
All of this as the G-20 major industrial and emerging market countries were ending their summit meeting in Cannes on Friday, where a related drama played out.
A major part of the big rescue plan for the eurozone calls for increasing the size of the ESFS rescue fund from 440 billion euros to 1 trillion euros ($1.4 trillion). How that will be accomplished has yet to be worked out. European officials were hoping to use the G-20 summit to convince others to help.
But the meeting ended Friday with no G-20 country committing to contribute to the fund, only agreeing to continue to discuss the possibility.
Meanwhile, in recent columns I’ve been saying that if we could only ignore Europe, global economic fears would not be so ominous since indications are that the U.S. economic slowdown has bottomed and a recovery is underway.
We received still more evidence of that this week with reports that auto sales were strong in October, 7.5% higher than October of last year. And while Friday’s employment report was that only 80,000 new jobs were created in October, a bit short of the 90,000 that were forecast, the unemployment rate ticked down to 9.0% from 9.1%.
And more importantly, there were substantial upward revisions to previous reports. The number of jobs created in September was revised to 158,000 from the previously reported 103,000, and hiring in August was revised up to 104,000 from the previously reported 57,000. It’s another positive to see previous reports being revised up rather than the endless stream of downward revisions to previous reports that dominated the reports during the summer.
But unfortunately, markets are back to being hostage to the whims of tiny Greece, and whether its prime minister will survive Friday night’s confidence vote, while world leaders continue to demonstrate a profound inability (or unwillingness) to do anything about the almost two-year old worsening crisis – except to continue to discuss and worry about its increasing threat to their own economies.
It’s particularly disturbing to think that Papandreou might have called for the confidence vote only in an attempt to hold onto his job, perhaps thinking the Greek parliament will not vote him out, even though they might want to, if it would mean jeopardizing the debt crisis rescue plan.
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