Greece & Europe: how their woes will affect us in Canada

Here come the strikes, governments put to the test

First it was Dubai, now Greece. Government spending and excessive debts in dealing with the great recession have put some countries on the brink on bankruptcy.

Today, a history-making event in the 21st century: Greek government employees, namely customs and tax officials, will conduct a 48 hour strike. Next week there will be a 24 hour civil servant, doctor and Communist backed worker strike that will be followed by a general strike called by Greece’s main union on Feb 24th for 24 hours. This is all in protest to Greece’s new fiscal budget and is exactly what other countries will face that will test their will to make tough decisions on spending.

Up next to deal with these tough policy, spending and debt issues: the governments of Portugal, Spain, Italy and Ireland.

The markets continue to have a lack of confidence that these government choices will be implemented as country-denominated bond issues and stock markets trade lower, particularly in Portugal, Greece, Spain, Italy and Ireland.

The European concerns have the euro at the lowest level vs the US Dollar since June ‘09. With this we have seen an assertive increase in the value of the US Dollar, a countertrend to the Dollar’s slide over the past 10 months.

Not surprising Gold has been pulling back (inversely related to the US Dollar) and the Canadian Dollar has also retreated, but not in proportion to Gold and is, thus far, holding up well.

The greater implications for global stock markets? If Greece does not resolve their issues soon (unlikely) and we see the next country, as described above, encounter like issues, there will be a run on liquidity towards safety. And, as ironic as it sounds, the US Dollar is still considered the world’s safest store of value (even with the greatest amount of debt and deficit spending).

Thus, a scenario as depicted above would see a loss of appetite for any risk, US Dollar strength and global equity market and commodity, including gold, sell-off.



Saverio Manzo