The Greek Debt Crisis

I've been trying to get to the real bottom of why the Greek Debt Crisis is so "important." Greece is a Eurozone state of course, but it's GDP amounts to a little less than 2% of the Eurozone's GDP as a whole. If Greece was not part of the Eurozone, I rather doubt that their financial troubles would be considered very important.

But they are a part of the Eurozone, and so the Eurozone has gotten dragged into their mess. Thing is, the EU is a weird thing. It's not a real governmental unit, but it wants to be, and it appears that a large part of the problem is that a Greek default threatens to push other EU nations to that default brink, since they are relying in income from existing Greek bonds for their own revenue streams. Because of that, it is an EU problem, since a Greek Default would affect other weak members (Apparently Spain and Italy in particular). So, in the name of keeping things copacetic for member countries, the EU as a whole has to consider some way to implement damage control.

This also seems to be a headache for the EU, since there doesn't appear to be a mechanism for being kicked OUT of the EU. While there are rules for financial responsibility that nations are supposed to adhere to in order to be a part of the EU, those rules don't really appear to have any real mechanism to ensure that they are followed.

Add to this the fact that the Euro as a currency is a FIAT currency, which essentially means that the Euro is accepted by other countries because it is seen to be a stable currency, which means that the Euro members are also stable entities. Just simple default by a member country is not an indicator of a stability. If things reach the point of general civil unrest, that questions stability further.

This is where we see a "chain is only as strong as its weakest link" syndrome. If the Euro as a currency weakens, that actually impacts other nations that use the Euro. The relative cost to their economies is difficult to evaluate though, and well beyond the scope of my analysis. The question though is clear. Are you better off taking the hit from bailing them out, or taking the hit from the currency devaluation. The question though is further complicated by short and long term concerns.

I'm personally guessing here that long term the correct answer is to accept short term pain and let Greece default, but that involves short term pain, and politicians really hate inflicting short term pain, since voters hate to suffer, and so paying the bill later keeps the current politician in place longer.

Thing is, Greece may in fact be the weakest link, but the EU has other weak links in their chain, and this is highlighting it.

Lucky for Greece though, it looks like they will be bailed out, although they will have to cut back a LOT on government spending. We'll see if that is considered serious enough that they wind up with rioting anyway.

If that happens, it's going to be a lot dicier for the EU to deal with.

But then, this is international finance. What do I know?