A modern day Greek tragedy

by: Henry Meier

Remember those Greek tragedies we all had to read in High School? The basic plot lines always had the protagonist with a fatal personality flaw, which he didn’t recognize until he met his end. Over the weekend we moved closer to a real-life Greek financial tragedy and this one may impact the United States economy.

About the only thing that the German and Greek economies have in common is that they share a common currency:  the Euro.  For the past five years, the Greek financial system has been kept alive by loans from a consortium of international creditors. These loans have come at a steep price. Led by Germany, creditors have demanded structural reforms in Greek government spending. Although these reforms were starting to demonstrate some benefits, with the Greek unemployment rate over 25%, late last year, Greeks voted to hand over power to a party opposed to further Greek concessions in return for financial aid.

On the one hand, the Greeks bet that the Germans would agree to modify the demanded reforms rather than let the Greeks default on the debt payment and walk away from the Euro. On the other hand, the Germans knew that the Greeks overwhelmingly support membership in the Euro Zone and assumed that the Greeks would ultimately agree to continue structural reforms to maintain their financial system. This game of international chicken took a dramatic turn for the worse over the weekend.

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