Outside the Box

Navigating the Eurozone Crisis and Preparing for Greece’s Failure

John Mauldin

October 6, 2011

Folks, you hear a lot about the eurozone crisis, but what you don't run across very often is a coherent idea on how to move forward. My friends at STRATFOR, a private intelligence company, have done us all the courtesy of saying out loud what everyone else shies away from: Eject Greece from the eurozone.

It's not pretty. It belies the lovely concept of a unified and prosperous Europe. And the worst part: it comes with a big fat price tag, of the 2-trillion-euro variety. But it may be the only way to steer the train before it derails completely.

Today I have the privilege of sending you two pieces from STRATFOR. If you have a couple of minutes now, <<watch this video on preparing for Greece's (inevitable) failure>>. Then check out the written piece below, a deeper dive into the crisis as a whole. If you're interested in following all of STRATFOR's geopolitical analyses, as an OTB reader you can get a hefty discount off their subscription rate, plus a free copy of the NY Times bestseller by George Friedman (my buddy, and STRATFOR's founder).

Your hoping the Rangers take it all analyst,

John Mauldin, Editor
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Navigating the Eurozone Crisis and Preparing for Greece's Failure

September 28, 2011


LOUISA GOULIAMAKI/AFP/Getty Images
A protester sets fire to euro banknote copies in Athens on Sept. 17

Summary

The eurozone's financial crisis has entered its 19th month. Germany, the most powerful country in Europe currently, faces constraints in its choices for changing the European system. STRATFOR sees only one option for Berlin to rescue the…

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6 comments

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Comments

Georgios Tzenichristos

Oct. 8, 2011, 2:06 p.m.

John, I really can’t understand how you published this amateurish article. There is nothing new here that one wouldn’t find in countless news articles published over the last few months around the world. The information in this article is old, basic and full of errors. Your articles are of very high standard, but Stratforâ??s are typically basic.
You could say that Stratfor is a collator of publicly available information, but the information it provides is by no means exclusive and cannot be described as â??intelligenceâ?. This is a collation of widely available information which has been in the public domain for more than 6 months and seems like it has been â??googledâ? and then put together by a high school pupil. If it was accurate I would call it an interesting essay or executive summary, but I wouldnâ??t call it intelligence or insider information that Stratfor is supposed to provide. I certainly wouldnâ??t pay money for it.
Furthermore, this text is riddled with inaccuracies and contradictions, so Stratfor even fails to present a correct executive summary.
Firstly, 75% of the debt is held abroad:
â??Greece has more than 350 billion euros in outstanding government debt, of which roughly 75 percent is held outside of Greece.â? And then suddenly the debt is primarily held by Greek banks: â??the Greek banking sector (which is the single largest holder of Greek government debt)â?. And then the bulk of the debt which is primarily held in Greece and abroad at the same time, suddenly is held by Portugal, Ireland, Spain and Italy, when everyone and their dog knows that is primarily held by French and German banks (no mention of those banks int he article): â??The 280 billion euros in Greek sovereign debt held outside the country is mostly held within the banking sectors of Portugal, Ireland, Spain and Italyâ?
Not to mention the geopolitical waffle about Denmark splitting germanyâ??s coast in two parts and that Greeceâ??s rivers and terrain are not of the right kind. Navigable rivers? Really? Has it not occurred to the kind people at Stratfor that most of the cost of commodities is governed due to retail and pre-retail distribution than primary production and transportation? The river analysis was relevant a few centuries ago, but it means nothing in the post-industrial era.
Then there is the fallacy that Greece was not an independent country since 4th century BC ROman only invaded on the 3rd century, get your facts right). And I would expect Stratfor to have studied a bit more history, if they want people to pay money for their â??intelligenceâ?: the byzantine empire was essentially Greek from the 9th century AD all the way to the 15th century AD. Six centuries of empire are not too bad. Letâ??s see how much the US will last…
According to the video, Greece is supposed not to have a shipping industry anymore. Who do they think operate those super-containers they are talking about? Greece is as active in shipping as ever.
Also according to the video, Greece is based on foreign money supplied by the US for geopolitical reasons. This money, in fact, consists of military aid (basically old equipment) which is also advanced to Turkey. in this way, the US had led Greece and Turkey to ever increasing weapon purchases from the US, with costs of that arms race dwarfing the military aid. So Greece, instead of benefiting from that free aid has actually lost out.
I think Stratfor should grow up a bit and do some more research before writing nonsense.
The basic message of the article is true, Greece will soon default, but most of the analysis is old news and riddled with inaccuracies.

Gerald Ferguson

Oct. 7, 2011, 8:15 p.m.

What should or can the U.S. do to protect its economy from the eventual tragedy in the Euro Zone?

Andy Mobbs

Oct. 7, 2011, 12:06 p.m.

How did Stratfor come up with a figure of 2 trillion Euros for Greece to leave, I can’t work it out?

Michael Gorback

Oct. 7, 2011, 10:53 a.m.

I just keep wondering what happens when all those derivatives come into play after whatever happens (ejecting Greece, keeping it as a pet, stuffing it and hanging it on the wall, etc). There will be a lot of people looking to their counterparties for payment and I don’t know if there’s enough money to settle all the contracts. I can’t help but think there is massive deflation coming.

Ever since I read Michael Hudson’s Super Imperialism the world has looked like a giant game of musical chairs with a terrible chair/player ratio and all the players desperately trying to keep the music playing to delay the moment of truth (I believe Mr. Mauldin has used this metaphor in his writings as well).

Well, the band is running our of wind, there are way more players than chairs, and when the music stops the value of chairs should go through the roof.

IMHO, a bank account is “no country for old men”. Paper money might actually be worth something after all, once the zeros and ones have evaporated.

Robin Day

Oct. 7, 2011, 10:35 a.m.

The danger of cutting Greece loose from the Eurozone is two fold:

1)the risk of creating a social and economic ghetto, and all the problems arising therefrom.
2)an economic and political vacuum in the underbelly of Europe….and the risks associated with what fills that vacuum.

The EU will evolve as a consequence of the “Greek failure”, but will become stronger as a result.

Nelson Swanberg

Oct. 7, 2011, 8:09 a.m.

Seems to me the Euro Zone nations are going to have to accept a reserve bank system with the ability to buy debt and create money out of thin air to bail themselves out of the mess they created by lending the crooks in Greece money. That means inflation which seems to be what the Germans fear the most. And we think the US economy is screwed?

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