Does Greece’s Debt Really Matter?
In one week we watched the stock market tumble more than 6% on news that Greece was having fiscal problems stemming from its oversized debt. Though the country is a member of the EU, and bankruptcy is never good for the global economy, I can’t find any reason for the markets to react in such a way.
Greece Doesn’t Matter
Sorry to the Greeks, but in the grand scheme of things the fiscal health of Greece is of little importance to anyone else around the world. With GDP of about $385 billion, Greece produces roughly 1/40th that of the United States, very, very little when you compare it to the rest of the economic activity throughout the world. Also, fiscal issues weren’t a surprise when traders started selling off like crazed maniacs. Greece’s debt is nothing new.
So Greece has a lot of debt and its struggling to keep the books straight. Most countries have this problem. Greece’s only problem is that unlike other nations, it cannot print up more money or pay off its debt with inflation. This is because of its decision to enter the European Union which practically strips all member nations of their national sovereignty and the right to print and issue their own currency. So, instead of inflating itself into oblivion, Greece wouldn’t be able to make payments on its debt and would instead default, an answer that traders weren’t willing to cope with.
Why Greece Almost Matters
Greece is a member of the EU, thus anything that comes out of it instantaneously impacts any other member nations. The fact of the matter is that Greece will be bailed out, the Euro will be inflated, and yes, the world will continue spinning. At what cost? A little bit of inflation, nothing new, and frankly, the Euro had been holding up quite well due to the ECB’s policy to keep interest rates from plunging to new depths. All in all this is a non-story and should not affect the domestic markets.