Tom Kontos

The Greek crisis and the economy

Greeces history has gone from Heroic to Tragic

Ancient Greeces history was

so long, productive and eventful it was broken into classes such as:

Archaic Period Homer Classical Period Pericles Hellenistic Period Alexander

Modern Greeces history has been one of occupation

and foreign intervention from which the country has never truly been liberated:

Ottoman Empire (400 years of occupation, 1453-1827) Installation of Bavarian ruler German occupation during WWII Military Junta 1967-1974

Since joining the Euro in 2001, Greece has had a new series of historical epochs.

Background
Greek election on May 6 resulted in non-coalition

government and fragmentation. Major parties:

New Democracy conservative Pasok socialist Syriza upstart leftist movement

Troika EU, ECB, IMF lenders to Greece and

arbiters of the austerity program New elections June 17

Thoughts from my relatives: Its very Greek to me.

Cousin Evangelia (66; retired): Its not so much folks from our generation who are suffering; weve been through tough times before. Its the young people whose careers cant get off the ground who are being hurt the most.
Still, several of my aunts, uncles and cousins have seen their

pensions cut multiple times and are well past the early retirement ages that Greece has been criticized for. Pay cuts and tax increases have decreased disposable income, but prices stayed the same or gone up. Cousin Demitri (54; Engineering Professor): My pay was cut 20% and my taxes are up 10%. Ive tried to supplement my income with consulting jobs but with the weak economy, these have dried up. Also, the university is in arrears on my pay.

Greeces Exit from the Euro

Risks to Greece

Bank collapse worthless Greek government bonds; run on deposits Devalued Drachma replaces Euro as domestic currency; foreign debt would still be in Euro; households bankrupt Already-severe recession would intensify (see graph) Unpaid debt (currently $290 billion) (see table) Mild recession would intensify Countries like Italy and Spain exposed Impact on GDP likely to be less than 1.0%

Risks to Eurozone

Risks to U.S.

Note: Greece is 35th ranked global economy. Italy is eighth and Spain is 12th.

Exposure to Greece Public Debt in EMU by country

Country 1 Germany 2 France 3 Italy 4 Spain 5 Netherlands 6 Belgium 7 Austria 8 Finland 9 Slovakia 10 Slovania 11 Portugal 12 Luxembourg 13 Estonia 14 Cyprus 15 Ireland 16 Malta 17 Greece Total

Debt GDP (2011, , Bn , Bn) 84.5 2,571 63.3 2,002 55.8 1,580 36.9 1,073 17.8 602 10.8 368 8.7 301 5.6 192 2.6 69 1.3 36 1.1 171 0.8 43 0.7 16 0.6 18 0.3 156 0.3 6 0.0 215 291.1 9,419 (Ranked)

% of GDP 3.3% 3.2% 3.5% 3.4% 3.0% 2.9% 2.9% 2.9% 3.8% 3.6% 0.6% 1.9% 4.4% 3.3% 0.2% 5.0% 0.0% 3.1%

Note: Greece is one tenth the size of German economy and would be the 15th ranked state in the US.

Note: Greece Debt to Greece GDP = Source: Barclay's

135.4%

Greeces Exit from the Euro

Devalued Drachma could boost Greek exports

and tourism. But this assumes no hyperinflation and tourist fear of instabilitytwo big ifs.
Bottom-line: risks outweigh benefits.

Greeces Exit from the Euro

Adds uncertainty to an already uncertain recovery. Actual financial impact and ability to derail

recovery may be much more negligible than perceived impact. My expectation is that cooler heads prevail and the June 17 election will install a coalition government that will negotiate for a reasonable solution given concessions are made on both sides.

Efharisto
(Thank you)