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The European Greece Mess

November 2, 2011 – 4:50 pm

With uncertainty coming out of Greece, as the Prime Minister announced a desire to put the austerity programs to a vote after an intense negotiated deal with the rest of the EU, stock markets around the world convulsed. It was a spat of monumental stupidity. There is no way the Greek people, with their daily strikes, are going to vote to accept a massive cut in their government giveaway programs. This populist political system is what got them in this mess in the first place. Why in the world would the rest of Europe continue to try and save Greece? Fear!

They fear the spread of the debt bomb because the same populist politics, with the result of outsized spending in a socialist system, has made Italy one of the highest indebted countries in the world followed closely by Spain. If Greece defaults (technically they already have) will that spread to other countries and exactly how bad will it affect some of the largest banks in Europe who have been buying all the debt put out by their host countries?

It is a mess that has already affected Europe’s economy. The Euro-zone Manufacturing PMI report came in at 47.1, below the important 50 level. This means that sector of their economy is now shrinking not expanding. Our ISM manufacturing sector report this week came in at 50.8 when the expectation was for it to expand to 52 in October from 51.6 in September. Are we seeing a reflection of some of Europe’s problems?

This is why Greece, a tiny country that means very little economically speaking, has a big effect on the rest of the world.

Good Trading
Steve Peasley

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