A continuation of the discussion begun here:
OK, the “Big Election Day” came, and Greece stepped back from their ‘protest votes’ for Nazis and Socialists and elected the “Conservative” government.
So what does THAT mean?
The short form is that they voted to stay in the Euro Zone and accept more German money and ‘bail-outs’ rather than say “Up yours” to the EU and “Austerity”.
But they as a country still don’t make much of anything, don’t export much of anything, have a 22%+ unemployment rate, and have a large retired population on the government dole. But the good news is that they want to keep using the Euro as their currency and will accept all of them that Germany will send… if you can call that good news.
A large part of the population is still against “austerity” (meaning “live within your means” or “do not consume more than you create”). The battle between them and the folks who wish to impose such self restraint upon them is now moved about 6 months down the road. Plenty of time for more German money to be sent over.
The real drama will now move to Germany. Will they continue to fund a Greek Retirement on the beach? Will they continue to support government payments to the 22% unemployed to be well cared for while they do nothing? Germany is demanding more “integration” (mostly financial, but who knows what else) by which one can assume they mean “German Control”. Greeks are still expecting a free ride, but perhaps just a little bit of additional promises to be “good tomorrow for more money today” first…
The Socialists have already said they will not join a coalition government. It remains to be seen just what the final Greek government will be. But at least we have a goal now. That goal? “More of the same, please”. Somehow I don’t find that particularly comforting…
The general narrative is that stock, commodity, and other “stuff” markets will like this news, so rise. “Fear trade” instruments like bonds (especially European Bonds) and gold will likely fall in price as money leaves them headed for “Risk On” assets like industrial metals, stocks, productive real estate, etc. Expect to see a small rise in oil, too, on the thesis that recovery is just around the corner now so oil demand is sure to rise.
I don’t expect the euphoria to last long, though.
“Kick the can” never does last long.
In the end, real wealth creation and real production of goods have moved to China. China has a merchantilist policy of protectionism and market predation. China is buying global resources and “locking them up” for China to use when it eventually decides to jack up prices (and will then say “you can always make it yourself… if only you had a factory or resources…”). As long as that game continues, the “established economies” are just warm meat for the leaches to suck more blood. One of the financial shows had a USA vs China presentation on resource consumption. We use something like 8% of global iron, China over 40%. Similar numbers for tin, copper, etc. The industrial metals plays are now a “China buys” play. Prices will depend on Chinese buying and that will depend on sales of Chinese stuff.
IFF Greece had gone to the Drachma, they could have inflated away their debt burden, paid their “benefits and pensions” in nominal terms while repudiating the value in real terms, and cut their cost basis enough to compete on the global stage for exports. As it is now, they are married to a German Hausfrau who will be demanding and nagging that they eat less, drink less, get a better job, not spend so much time at the beach, and provide more bits of gold to her liking… Time will tell if this drama ends, eventually, in divorce, or not. For me, I just don’t see where Greece has the productive capacity to cover its debts and ‘social obligations’, nor do I see how a German Boot to the neck will change that.
But for the next few weeks, expect the “honeymoon” to be a pleasant one… and expect plenty of added pleas that the USA and ROW pitch in some money to help Germany send their “partner” through rehab…
Sidebar on Germany:
How is Germany able to pay for this? Near as I can tell it is thanks to the large growth in exports of Mercedes and BMW autos to China. The New Rich there want status symbols as much as the next person, so paying extravagant prices for a German car sill has a certain charm. IF the present slowdown in China starts to dampen that market, or IF the Chinese car makers start selling a close enough knockoff: that German Exceptionalism will head down the same road as all Socialisms. BTW, the Chinese are making some pretty cool looking cars these days. It’s only a matter of time, IMHO.
But for now, the ‘paying extra to show off’ is keeping Germany afloat on a sea of high prices.
Me? I’m looking at the cost of repair parts for my old Benz and thinking that it would be cheaper to just buy a whole different car. I’d never buy a new Mercedes as this point. Just way too many very expensive things that break on the new ones.
Remember that patents only run for about 18 years. That means that anything made prior to about 1994 is free of such encumbrance. China can, if it wishes, make a 1994 Benz knockoff with mild changes of styling. Similarly Chemical Factories can be made using any patented processes who’s patents have expired even without a license. Exactly what, other than a bit of glitz, does Germany really have to sell to China to keep funding Greece?
In the end, the bulk of the global money is ending up in the pockets of China and OPEC. One for “toys” the other for fuel to run them. The Green Fantasy of “green jobs” in solar and e-Cars saving the western economies is just that, a fantasy. China dominates solar panels and can just as easily dominate any other manufacturing field ( i.e. windmills) that it so chooses. They just launched more astronauts this week (including a woman) and have plans to establish a space station (and eventual mining of asteroids and the moon). I think that pretty much shows that there isn’t a “technological advantage” in the west any more.
It will continue to take a while to reach the end game. Likely another 2 decades is my guess (though I could see it in one if things work out well for China, as they have.) About then we will get to watch as once again the German penchant to think themselves superior to the competition runs headlong into the Chinese Wall…
Oh Well. At least Russia understands the nature of the game and the issues involved. One can only hope they will rather not help to collapse the EU and USA if it enriches China too much for comfort. One can fear that they would rather it be a duel of Russia vs China and if the EU and USA are comatose then the China Income Faucet gets turned off… but I’m sure they would never think that strategically… I mean, it’s not like they are Grand Masters at Chess… /sarcoff;>
Right now in Mexico, the G20 (Group of 20 industrialized and industrializing) nations are meeting. Expect a good party, but relatively clueless 3rd world governments bickering while fully arrogant Old Fart Established EU and USA preen and powder their faces for the camera. Expect to see Russia and China quietly smiling while they say little… except, perhaps, “Would you like a fresh drink? Here, let me get one for you…”