All the best traders are considered to be so as they generally cut their losses quickly and let their winners run longer. Sadly this does not describe my own style but also not that of the Eurozone but both for different reasons.
Greece is the paper cut of the Eurozone, small but packing a serious sting. The scales of disadvantages and advantages of having Greece as a member of the Eurozone are certainly unbalanced at the moment. Not only has a considerable amount of time, money and patience been worn out over the last two years but now the country itself is biting the hand that feeds them.
If the EU were run by traders then Greece would have been cut a long time ago. It would be a war story been told in a loud brash bar somewhere by flash hedge fund types. However the EU is run by politicians and there is one serious issue that has been the epicentre of the credit crisis since it started…..confidence. Since Lehman, confidence in the banking system has taken a rather large hit and then a year or two later sovereign govt. debt, once considered the safest of asset classes to park your money has taken a major confidence hit for many nations.
The strength of a nation can be viewed from the angle of how they treat their weakest members. The European union as a concept will be shattered if Greece were to be cut like a losing trade. It completely undermines not just the past but more importantly the future of the Eurozone. Greece is a weak link, absorbing lots of bailout dollars and causing political nightmares for the stronger nations to deal with. It seems like a new headline or curveball erupts from the country just as soon as things have settled down from the last. The Eurozone is teetering on the edge of a precipice and now is when its needs to show more strength than ever before to instil confidence in investors worldwide. If Greece were to be exited then investing in the Eurozone would not be as attractive a prospect as it once was as its unity is called into question.
If one member can be cut at will then in the long term it says that no member is safe. Europe is made up of many small periphery nations banded together for strength. If it were compared to a family unit with Germany and France the parents, Italy and Spain the eldest sons then the rest of us are the poor cousins. If all of sudden one of the poor cousins is struck off the Christmas card list then paranoia and bitterness will spread like wildfire amongst the rest of us and lead to an eventual break up. The majority of nations including France due to recent political events would suffer dramatically; even Germany would suffer as they would be accused of cutting the ripcord. The subsequent unravelling of the Eurozone would cause an incredible drain on the global economy and throw markets worldwide into a dangerous volatility spin worse than banking crisis.
So far I have assumed that Greece would be asked to leave, however there is another scenario one which is playing out on the streets of Greece as we speak. The Greek people tired of enforced austerity measures are in a primal way resorting to listening to anyone with a view, voting for a neo-nazi group have totalled 7% of the vote and attempts to form a coalition government from the more traditional parties are struggling. If Greece want to leave then how does that leave the Eurozone? Greece would probably be better off as it is a chance to eradicate debt and return to drachma and perhaps rebase and become more competitive. Again this is not ideal for the Eurozone but perhaps slightly more palatable as they were not kicked out?
At a guess the “Grexit” will get rectified as it is too scary to think otherwise, and a coalition government will be formed and Greece will get their next bailout package and we will get back onto focusing on bigger issues at hand like Spain. The pressure is on, and this time it is up to the people of the Eurozone not just the politicians to take a step back and look at how their current actions will affect their future. Austerity measures are a painful but very necessary step on the road to recovery, the sooner we all stop fighting it and take it on the chin the better.