Greek Exit: Big Surprise?

Originally Published May 2012:

Greek Exit: Big Surprise?

Let me begin by disclaiming that this is a viewpoint I stole from Stratfor. It is not of my own making.

I was at a conference in St. Petersburg, FL last November. On the first day, the opening speaker was giving an overview of general market conditions and made a few comments that I could just not wrap my head around. She was talking about the EU and said that they were very confident that while conditions in Greece were difficult it would not exit the EU. She said that France/Germany would work to ensure this would positively not happen. After the presentation I raised my hand and raised this question:

“Since its inception as a modern nation Greece has operated on the verge of bankruptcy and has avoided it in a combination of three ways:

1.      By tourism, by which no country can sustain itself with exclusively

2.      By maritime trade, which has shifted to larger countries with more modern ports

3.      And by acting as a hub for larger nations to invade its neighboring nations

With #1 being insufficient on its own, #2 decreasing, and #3 not looking to be any sort of option in the near future, how is Greece to sustain itself? It falsified financial information to gain admission into the EU and its economic landscape is only worsening. It has been and likely will continue to be on the verge of default. The analysis I have read has said that Greek withdrawal from the EU is not only likely but somewhat inevitable. How do you justify saying it will remain the EU?”

The speaker rambled off some comments about how the ramifications for a Greek exit would be very difficult, other countries would not want for that to happen, it would just be really, really hard, etc. The attendee next to me leaned over and whispered “I think you stumped her.”

No one has ever claimed that a Greek exit would not be painful. No one has ever claimed it would be the preferred approach. Greece leaving would send ripples to Spain and Italy and make an already undesirable debt market even more difficult to sell to investors. No one wants this to happen.

But it seems increasingly unlikely that it can be avoided. Germany has a superior river network and higher worker efficiency. The only way a smaller country such as Greece can remain trade competitive is by currency devaluation – which is not an option with the Euro. So it will continue to struggle in the current system.

If Greece ends up leaving the EU, is it really a surprise?