With less than two months until the US Presidential Elections and a fortnight of convention madness still lingering in our collective unconscious, you would be forgiven if you forgot that there were other countries in the world that weren’t America. Normally I’m pretty good at keeping up with the conflicts in the Middle East and the goings on in the global economy, but I’ve been pretty well whipped by the unceasing onslaught of partisan hackery that has been foisted upon us these past two weeks. Between Grandpapa Eastwood performing some long lost Samuel Beckett play with a piece of office furniture and Bill Clinton spiking America’s drink with his folksy Arkansan charm, I didn’t have the psychic energy to pay much attention to things happening in places that weren’t named Tampa or Charlotte.
Looking back on the conventions, it doesn’t seem like the candidates put much truck in paying attention to world events either. Mitt Romney’s RNC speech spent a whopping 202 words discussing foreign policy, the majority of which were spent fearmongering about Iran and suckling at the teat of Israel, while Barack and friends spent their time accusing Romney of possessing a Sylvester Stallone-based knowledge of Russian affairs and lauding their (debatable) successes in the Middle East. No mention was made of the Eurozone debt crisis, which casts a perpetual pall upon the global economy and has the potential to do more damage to America’s economic recovery than a slew of bad jobs reports. As if to reinforce this fact, the Dow Jones industrial average soared 245 points on the day of Obama’s big speech as the result of positive news out of Europe surrounding a new bond-buying program plan to contain Eurozone debt. The Dow and the S&P 500 closed on Thursday at its highest mark in over four years, while the NASDAQ hit territory not seen since 2000. What happens in Europe also happens by proxy here in America and, while our political rhetoric might not reflect this reality, the actions of our financial sector certainly do.
It’s no secret that Greece is now the ugly red-headed stepchild of the European Union. The world has been waiting for the other shoe to drop on their abysmally managed economy for months now and it seems as if many people have gotten tired of waiting. A number of US companies have been preparing what are known “contingency plans” to ready themselves for the possibility that Greece would leave the Eurozone. For those of you who didn’t pay much attention to your Econ professor in undergrad, the reason why these contingency plans are necessary is that if Greece leaves or is kicked out of the Eurozone, they then have to revert back from the Euro to their old currency, the drachma. This wouldn’t be a problem except for the fact that the drachma is worth a hell of a lot less than the Euro. As a result, this change in currency would have the effect of immediately making all Greek money worth about 1/3 of what it was worth the day before. Not to mention the fact that the currency that everyone in the country uses is suddenly non-legal tender and no one has any drachmas to buy things with because the Greek Treasury hasn’t started making them yet. In the event of their exit, anyone who had major investments in the Greek economy should be immediately put on suicide watch.
All these contingency plans do is ensure that companies can respond swiftly and efficiently to a potential Greek crisis, should it come to pass. These plans have nothing to do with ensuring that the Greek economy doesn’t tank and everything to do with making sure the company creating the plan has their shit together if it happens. The New York Times blog likened it to a fire drill, but I don’t think that’s quite it. Every school or business in the entire country is required by law to have fire drills and the chances of someone actually being in a massive building fire are pretty slim. This is really just a case of hedging your bets. By keeping your money in a Greek business, you’re taking a huge risk with the hope that things turn around and you make a killing as one of the few investors who stayed put in a volatile market. In order to mitigate that risk, you take preemptive measures to ensure that you can stop the bleeding as quickly as possible should your bet not turn out. For example, JPMorgan Chase has already created a number of “phantom accounts” for their major customers in the region that have been set up to receive and deal in drachma, should there be a switch in currency1. This way, instead of fumbling about for hours or days after a Greek collapse and being unable to trade in the country’s new currency, they can hit the ground running. Likewise, Ford has already reconfigured their computer systems so that it can deal in drachma as soon as a switch occurs.
With big business taking such concrete steps to avery a potential Greek implosion, it is more than a little worrisome that neither of our Presidential candidates has made mention of the Eurozone crisis recently. If they have any plans for dealing with the increasingly likely return of the Drachma, we certainly haven’t been made privy to them. President Obama has been on record for months now as to his belief that European nations need to take more action to support their failing banks and inject money back into the economy. He, along with most of the world, has been very cool on the austerity measures that have been put in place by Germany and other leading EU states, but hasn’t put forth any plans for either helping Europe extricate themselves from the situation or for protecting the US economy in case of a collapse. On the other side of the aisle is Mitt Romney, that scion of business and financial demigod, who has taken to avoiding the Eurozone like the plague during his campaign, mentioning the debt crisis only so far as to tell Bob Schiefer that he wasn’t going to write any checks to European nations. Romney even went out of his way to avoid visiting any Eurozone nations on his international mini-tour back in July.
Maybe, I’m making mountains out of molehills here, but the lack of public debate and planning after months of impending Eurozone crisis scares the hell out of me. The proverbial rats of the financial sector have begun abandoning the sinking ship and my gut says that they’re more right than wrong. Greece’s GDP dropped another 6.2% in the second quarter of this year and their center-right coalition government appears just as inept as the one they replaced. One London economist speculates that in order for Greece to remain competitive in the marketplace and meet the austerity measures commensurate with their bailout money, they would have to cut real wages 30-40% nationwide2. In a nation where unemployment is over 23% and the pursestrings have already been tied tight, that sort of wage reduction has no chance of happening, nor should it happen.
The President of The United States is often referred to as the leader of the free world. It would be nice if for a little while both of the men running for that office took minute that the free world extends to other side of the Atlantic as well.
Categories: International Affairs