Monthly Commentaries

A Greek tragedy – October, 2011

Europe is a mess - and that was before Greek PM Papandreou surprised everyone, including his own government by announcing plans for a potential referendum on the bailout package agreed at last week's Euro Summit. He may well be attempting to call the bluff of the Opposition party and/or soften the stringent austerity program imposed by the European Union and the IMF, but in this Greek version of Russian Roulette, five of the pistol's six chambers contain a fatal bullet. At best, the likely outcome is a series of delays to Greece obtaining additional bailout funding during which the country may well run out of money. It's not that the Euro Summit bailout package really resolved anything. In typical European style it was long on resolve and determination, but very short on specifics and firepower.

It may have bought some time for further negotiation with G-20 members on boosting the European Financial Stability Facility's (EFSF) firepower to 1 trillion Euros, but the uncertainty now surrounding Greece has cast doubt over the very survival of the Euro and even the European Union. German Chancellor Merkel mistakenly believed that the solution to solving Europe was restoring confidence when in fact it is solvency. Bundestag approval for the bailout package was conditional on the European Central Bank (ECB) not being able to print money, so now the only Eurozone institution capable of preventing a meltdown in many of the area's public debt markets and a collapse of some of the banks effectively has its hands tied.

Where do policy makers go from here? Unfortunately, back to that incessant negotiating table. However, this saga is now more than two years old and electorates are growing increasingly restive. An urgent and convincing resolution that combines austerity with nurturing growth is imperative. Until then, financial markets will remain roiled by uncertainty and heightened volatility. We have accordingly added to our clients' cash resources, waiting patiently for those pockets of value that invariably emerge. Peter Sacks Founding Partner