Now that the Greece situation is finally coming to a head, hands are wringing all over the globe.
Sure, Greece looks small and the status quo is miserable and unsustainable, but this has never happened before.
What if Greece is another Lehman Brothers? What if Greece is the first domino to fall in a cascade to disaster? What if financial markets panic and crash, economies seize up, and the world plunges into another financial crisis? What if…
As everyone asks questions that no one knows the answers to, some of the smartest people in the world are weighing in. Mohamed El-Erian thinks markets will drop and then recover (except Greece’s). Paul Krugman thinks Greece is doing the only thing it can under the circumstances. And so on.
So far, happily, none of these smart folks are predicting disaster.
And one of them, it bears noting, thinks the fallout will be much less than everyone thinks.
Mark Dow, a hedge fund manager and the author of Behavioural Macro, is mostly unconcerned. He thinks the world is much better prepared for a Greece default than it was a few years ago. He also thinks going back to its own currency is the only way for Greece to get its economy going again. The transition will never be easy. So better now than later.
Dow knows that his optimism is likely to be greeted with ridicule. In times like these, he observes, one is supposed to furrow one’s brow and act deeply concerned. But the facts, Dow argues, don’t bear that pessimism out. Greece’s exit will eventually be fine — better for Greece and better for the Eurozone. And it will create a template for other Euro exits to come.
Here are some of Dow’s points. You can read more at Behavioural Macro:
I know it seems less than serious if we don’t furrow our brows and darkly recite things like “this has never happened before”. And sure, in the short term markets have been leaning toward a last-second deal and would be wrong footed. Some markets have been looking tired, so it could even get rough. But when I look at Grexit I see a world in much better fundamental position to avoid the cascading systemic contagion we (rightly) feared as recently as a year ago. Now is the time to do what the system could not handle in 2010: get Greece off the toxic medication and onto a path of growth and dignity…
How bad would Grexit be?
There’s a lot we can’t know. But there’s also a lot we do know, and pretty much all of it has changed for the better. Here’s my take:
1. We’re more psychologically prepared than we were in 2010.
2. We’re more financially prepared.
3. We’re more economically prepared.
4. Sword of Damocles has been hanging over the global economy — not just over Greece and the EZ.
5. Greece, with its own currency, would finally get a path to growth.
6. The Eurozone would emerge stronger.
7. Having a template for leaving the euro is a good thing, not a bad one.