Tags: Greece | euro | leave | crisis

Greece Likely to Enjoy Its Stay at the Hotel California

By    |   Friday, 06 February 2015 08:05 AM

Investors can breathe a sigh of relief that the latest euro crisis is likely to end like the previous euro crises did. There's no reason to expect any real change to the system, and that means there will be no change to the investment outlook. European stocks should remain attractive to value investors and should continue to deliver gains as the euro continues to fall.

At the center of the crisis, Greece has started negotiating the next step of its bailout and it seems safe to assume the negotiations will result in a solution. It's also safe to assume the solution will simply delay the day of reckoning. Delaying consequences has become the goal of central bankers around the world and for now, that policy has been successful.

Greece's latest crisis began with the election of a government that seems more responsive to the citizens of Athens than to the executive board of the European Central Bank. While there is talk of Greece leaving the euro, that seems unlikely to happen. There is no defined mechanism for leaving the euro.

The euro is modeled after the Hotel California, a unique party spot immortalized in a 1972 Eagles song. The Hotel California was unique because "you can check out anytime you'd like, but you can never leave."

Greece checked into the euro to join the party and might have partaken of the excesses more than other attendees did. Access to the euro meant Greece could issue bonds at extraordinarily low interest rates and fund a government known for inefficient spending and lax tax collection. They were invited in, but their hosts are now realizing there is no way to make this guest leave.

Because Greece can never leave, I expect the current debt negotiations to bring some relief on austerity while adding some new debt to fund the country's spending. This will allow Greece to limp toward the next crisis in a few years and will demonstrate that once you've checked in to the euro, you can never leave.

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Investors can breathe a sigh of relief that the latest euro crisis is likely to end like the previous euro crises did. There's no reason to expect any real change to the system, and that means there will be no change to the investment outlook.
Greece, euro, leave, crisis
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2015-05-06
Friday, 06 February 2015 08:05 AM
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