There is an ongoing theme in Greece. The theme is one where it is going to exit or be forced out of the Euro, only to be saved yet again at the eleventh hour. While everyone in America has been occupied with news of Hurricane Sandy, things in Athens are getting worse and that spells another wave of trouble in Europe. The most recent drop is due to the country’s debt and budget worries. Some headlines have come out saying that it and the IMF have overcome many hurdles, but the real issue here is that Greece’s future in the Euro is one which ultimately seems impossible.
Maybe an ultimate Greek exit takes another year to unfold, or maybe it takes another three years to unfold. Ultimately, this forced austerity is going to stretch above and beyond what the entire public will stand for. When that happens, yet another election will be forced due to a no-confidence vote winning and at some point one of the anti-Euro parties will emerge victorious. It has not happened yet, and there is always a chance that it will not happen.
What is shock is just how bad this week has been in Athens. The Global X FTSE Greece 20 ETF (NYSEMKT: GREK) is down by over 5% to $15.28 today, but that is really a drop of 16% in just the two trading days in New York since last Friday’s close. The drop in the ADRs of the National Bank of Greece SA (NYSE: NBG) has been even worse. Its New York shares are down over 10% today at $2.12 but that drop is really over 31% in the last two trading days since last Friday’s close.
Whether you are sympathetic to the Greek suffering and the austerity measures is becoming a moot point here. Low work, getting to retire young, and having extended vacation and social services all sound like a free lunch to working Americans. When it has been a norm and an expectation for a couple generations, the reality is that austerity can only be taken so far (during peacetime that is) before the public rises up. How will that not be the case here?
The market is having to adjust to another “Greek risk scenario” and how it plays out this time is still a work in progress. Imagine if the Greek ETF was the Dow Jones Industrial Average. The drop is equivalent to more than 2,100 DJIA points.
JON C. OGG