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The Greek Dilemma

Sigma Investment Counselors

April 30, 2015

The problem, in short, is that Greece cannot meet its financial obligations in a timely manner and, perhaps, not at all.  Negotiations with Greece’s creditors are at an impasse and both sides are engaged in a high stakes game of chicken.

Neil Irwin, a senior economic correspondent of The New York Times, recently commented on the problem.  “The simple version of the Greek talks is this:  A new, leftist government came to power in Greece in January, pledging to rework the country’s arrangements with international creditors and thus ease the severe austerity measures that have devastated the Greek economy.  The creditors, namely other European countries, the International Monetary Fund and the European Central Bank, have been willing to make some concessions but basically expect Greece to make good on its obligations.”

The problem with the creditor’s austerity recipe, while possibly justifiable based on alleged, previous Greek profligacy, is that it’s politically unacceptable and practically counter productive as the creditor’s only realistic hope for eventual debt repayment, is a stronger Greek economy.

Investors should consider that the odds are very good that this matter is unlikely to be resolved soon.  At this time, the only certainty is uncertainty.  Markets do not like uncertainty.

That does not suggest any immediate action.  In truth, uncertainty is generally the norm in a wide range of political and economic arenas.  Historically, this has led to volatility without undue disruption of major market trends.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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