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Greece at Rock Bottom?

By   /   June 18, 2012  /   No Comments

Those who hoped that a victory for Antonis Samaras’ New Democracy would bring an end to the Eurozone’s seemingly irreparable financial turbulence were sorely mistaken.

Nevertheless, we should all be grateful that second-placed Syriza didn’t storm to a comprehensive victory. Their anti-bailout stance would have seen them showing down with Angela Merkel and Francois Hollande and would most likely have resulted in a managed exit from the single currency. This could have brought with it bank runs, foreign exchange turmoil, capital flight and a raft of other economic horrors. The Greek government would quickly have run out of money, and would have defaulted on its debts, leading to further pressure on Spain’s beleaguered banking sector.

The alternative is better, but Greece’s medium to long-term future in the Eurozone is still far from assured.

First of all, Mr. Samaras must attempt to form a new coalition, a feat that Greece’s parliamentary body failed so spectacularly to do just a month ago. A rule that stipulates that the party with the largest proportion of the vote receives an extra 50 parliamentary seats will help him in this endeavour by. Even so, Samaras will need the help of third-placed Pasok, the Socialist party, in order to form a functioning government. Only then can the problems that Greece faces begin to be addressed.

Fundamentally, the Greek economy needs, more than anything else in the world, to grow. This may seem like a simplistic statement, and to some extent, it is. However, amid all the talk of debt repayments, growing social security payments, falling productivity, youth unemployment, falling competitiveness, corruption, strikes, riots, and suicides, it can be easy to lose sight of the bigger picture.

Apparently the traffic lights in Athens don’t work. Fine.

Strikes continue to affect the businesses that remain open. Don’t worry.

The Greek stock market is worth just 10% of what it was back in January 2008. This is clearly not the reality of the situation – either stocks were overvalued then (probably) or they are undervalued now (almost certainly).  To an investor, that represents an opportunity. After all, no risk can be judged to be too great without knowledge of the price. Price is essential for analysing risk. As Howard Marks, the founder of Oaktree Capital Management, said in his book, The Most Important Thing: “The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high.” We should all recognise that Greek assets are not likely to be overpriced at this juncture of its history.

With a functioning government, the private sector will realise that opportunity abounds in practically every sector of the Greek economy. With open government policy, continued support from the Eurozone and pure supply and demand at the microeconomic level, Greece could find itself out of recession for the first time in 5 years before long, and it will have a lot of spare capacity to grow into.

With growth, bank loans begin to be repaid more frequently, mortgages payments are met, and the currency reassumes its credibility within Greece. Only then can it start attempting to pay back its international debtors.

Greece is certainly not out of this crisis, but it just may have stopped to fall, and started the long, hard, climb.

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