Markman Capital Insight

Stocks survive Greekmaggedon


Stocks sank Monday but finished well off their lows as investors decided that Greek voters' decision to stiff their creditors might not be the life-threatening event of the century it was presumed to be. After all, everyone knows the country simply cannot pay its outstanding debt, and no amount of finger-wagging, name-calling, foot-stamping or threat-making by the eurozone financial authorities can change that.

The Greek people have said they cannot be thrown into the modern equivalent of a debtors' prison and still pay back the amount of debt that they can pony up, so what's the point of further isolation and humiliation. "OK, we get it, we've been bad," they are saying. But that doesn't mean we deserve the geopolitical equivalent of the death penalty. And besides, there is not another country in the eurozone that does not have debt problems of its own, including the Germans.

The reality is that the region's credit crisis was swept under the rug a few summers ago when European Central Bank chief Mario Draghi said he would do "whatever it takes" to bring monetary stability to the region. He has since papered over the eurozone's problems with a continental form of quantitative easing, which is polite way of saying "printing money" to support asset prices. This is not a sustainable solution, and until there is real growth and real structural labor and pension reform, we are probably going to see brushfires like Greece emerge repeatedly over the next few years.

Somewhere in the collective unconscious of market participants a realization dawned that what just happened is that one country decided to force the rest of the world to admit an uncomfortable truth. And maybe that is not such a bad thing. The organizations that were stupid enough to lend money to Greece ought to take less than they are owed as punishment for being overly optimistic dummkopfs, and move on.

While this might have been the underlying tone, the news event that seemed to catalyze the market's stabilization was news that brilliant but bellicose Greek finance minister Yanis Varoufakis had resigned. The flashy economist had made himself very unpopular at the bailout bargaining table, and wore creditors' distaste for him as a badge of honor.

The fact that he is now out of the picture may make it easier for Prime Minister Alexis Tsipras to cut a deal with the country's lenders. Yet as Ambrose Evans Pritchard points out in the London Telegraph, "his sacking is a paradox." Varoufakis was known as one of the most passionate advocates of European Union in the ruling Syriza party and saw his efforts as a rescue mission for states on the southern perimeter of the region.

It's expected that Euclid Tsakalotos will take over as finance minister. While he is seen as another super-smart economist, and someone who is much calmer, he is considered part of the more radical left wing of the ruling party. He has written early and often about his skepticism of the euro project, including a paper more than 20 years ago forecasting its demise. Expect more theater and angst in weeks ahead as Tsakalotos may turn out to have even less patience for the creditors than his predecessor. Click here to read Evans-Pritchard's take.

-- Jon D. Markman

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