Greece Should Claim Bankruptcy

Let’s just imagine the world had let Greece default in May 2010, when the near bankrupt nation first needed money.

Would the world economies have collapsed? …Probably not.

Would we be in a deep global recession? …Well, we kind of are.

In my opinion, except for extreme market moves in the immediate aftermath, the effects of such a default would’ve been minimal and by now ancient history. Just think of when S&P downgraded the U.S. debt. Some experts made it sound like the end of the modern world, but we survived.

By delaying its default the problem is getting worse.  The International Monetary Fund, the European Central Bank and European Union members continue to print Euros to hand to Greece in forms of multiple bailouts. This is, putting them in more debt, delaying the obvious default in Greece and further encouraging other troubled E.U. members to continue their delinquent ways.

The world should have let Greece fail, in order to encourage a global recovery. That’s how the economy can function efficiently. By allowing the weaker economies to press restart and giving the green light to stronger nations to move forward with confidence. What’s happening now is financially sound nations are being burdened with the problems of the weaker ones.

Basic economics teaches you to cut your losses in business early in order to avoid further economic suffering. How is it that the E.U. can’t figure that out?

I’ll give you three reasons.

The E.U. nations don’t want to come off as weak to the rest of the world. They want to continue their trade relationship with the giants like the U.S and China, but they remain worried that a Greek default will put them into an undesirable light to do business with.

The entire world is scared to death the markets will go into a free fall if Greece defaults. They worry about the return to the days of extreme volatility that plagued the markets back in 2008. Remember that’s when the U.S. was stepping in with its own bailouts, it calmed the markets for a few months and then markets hit the lows we saw in March 2009.

Greece still wants to reap all the benefits of being an E.U. member without actually qualifying to be in the club. The rest of world is greedy as well. A default would send many world economies into deeper debt because their loans to Greece would never be paid back.

Anyone who reads my weekly blogs knows I fight for the everyday person.  I understand that allowing Greece to fail would have dire effects on many individuals. But I firmly believe what E.U. members are doing now is not in the best interest of their citizens. They are protecting their own political interests by borrowing or lending more money.

Who is going to vote for the guy who has sovereign default on their books – no one!

Or the leader who watched as another country failed – not many.

In the U.S., President Barack Obama is desperately trying to keep his own job by bringing in the “American Jobs Act.”  My heart goes out to him, because the economic issues in America predate his time in office. But he cannot fix it by pumping more money into the economy.

The focus around the world has turned to self-preservation. The attitude is, how can I as a nation succeed while others fail.  While all this is happening, traders are still allowed to short the securities of other countries,  bet on nations failing and still make oodles of money. It’s ludicrous.

Unfortunately the reality is we’re all in this global financial crisis together. Canada isn’t immune. On the contrary it has created such a false sense of security for Canadians that we’re more vulnerable then some of the weaker nations.

At a recent financial journalism conference I attended, CBC Senior Business Correspondent Amanda Lang was a panelist. She put it well, “I can’t believe banks haven’t broken their arms from patting themselves on the back.” Well said Ms. Lang.

Remember don’t get caught up in how well we survived the last global downturn, because by all accounts this one is very different. On top of this the problems that were around in 2008 are now back with a vengeance.

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