Greece is theatre worth watching

Iattended a dramatic performance recently — won’t say which one — and by the middle of the second act, I had fallen asleep. It started off well enough, but the script and performances became pretty flabby, tedious and dull by the middle. Even after waking up, I had written the production off, so I left.

Investors following the ever-unfolding drama of Greece’s debt crisis might be starting to feel the same way. You could call the whole thing a Greek tragedy, but at least the ancient Greek tragedians had the good sense to finish up in three acts. Setup led to confrontation led to resolution.

With Greece, we’ve seen the setup: the clearly disastrous bailout of 2010, followed by Greece’s inability to get off the dole. We’ve got tons of confrontation. But the resolution never comes.

Pundits bandy about buzzwords such as Grexit (Greece withdraws from/gets kicked out of the eurozone) and Graccident (Europe loses control of the situation and the debt contagion spreads), but investors might be forgiven for having had enough of it all. Call it “Groredom.”

In case you’ve drifted off, here’s a précis. Once again this week, crisis loomed, as yet another deadline approached for a deal between Greece and its troika of creditors — the International Monetary Fund (IMF), European Central Bank and European Union — to release more bailout money.

There was the usual gnashing of teeth, accusations and somewhat amusing diversions. And then ... the crisis was put off till tomorrow. Or at least June.

Greece vacuumed the chesterfield, forcing state entities to hand over any cash they had lying around so the government could meet its obligations. Greece’s finance minister figures that will raise about 2.5 billion euros ($3.3 billion), giving the country enough cash to last a couple of more months.

But what then? No one now expects much to happen at a key meeting of finance officials in Riga, Latvia, on Friday, and Europe has abandoned pushing deadlines on Greece in hopes of avoiding yet another round of brinkmanship like we saw in February.

The crisis in Greece has not been averted, just delayed.

It’s worth asking whether anyone here in Canada should really give a rat’s drachma (you know, if drachmas still existed).

Greece is a small economy, accounting for less than one per cent of Europe’s GDP. Its stock market is similarly puny, and you can bet that not many Canadian investors are enticed by the 13-per-cent yield on 10-year Greek bonds at the moment.

Yet global markets continue to move up and down on the merest whiff of a worsening of the crisis or a continued delay. For instance, the S&P/TSX composite was down Tuesday on Greece fears. For reference, Canada-Greece trade in goods is $300 million a year — about 2,000 times smaller than our trade in goods with the United States.

But as tedious as it seems, the tragedy in Greece is, in fact, a tragedy.

The bailout of 2010, when the IMF and its partners essentially decided to bail out the country’s creditors (like German and French banks), simply shifted the risk from the private sector to European taxpayers, while doing nothing to relieve Greeks of their mountain of debt, which is now upwards of 175 per cent of GDP.

That debt-to-GDP number is slightly misleading, of course, because Greek GDP has shrunk by about 30 per cent since 2010 — hardly good news, either.

Meanwhile, creditors are pushing for structural reforms to get Greece’s economy back on track, but let’s face it: those reforms will take years to do anything to set Greece up for robust growth, and austerity measures are likely to decelerate the economy even further in the short term.

Unemployment is already at 26 per cent. More austerity will lead to more political and social unrest.

Ultimately, there are only so many ways this thing can end.

Greece can default and (maybe) exit the euro. Or the troika forgives at least some of Greece’s debt. Or things just keep on the way they’re going (with endless delays of what looks like the inevitable), Europe throws more good money after bad, and the players pretend that it will all work itself out, somehow.

Sadly, that seems to be the most likely non-outcome. But delay has a price. While Europe and Greece haggle and bicker, everything just seems to get worse. More than 65 billion euros of private capital has fled Greece in the past six months — equivalent to a quarter of the country’s GDP, according to Bloomberg.

With no real end in sight, investors are doing what any bored theatregoer might do: voting with their feet.

More austerity will lead to more political and social unrest