Jul 012015
 

The European debt crisis is so confusing, it’s like Greek to me. lol 😀 As of yesterday Greece became the first developed country to default to the International Monetary Fund (IMF) to the tune of €1.6 billion. Overall Greece owes about €300 billion to all its creditors.

15-07-owners-of-greek-debt-greece-debt

A referendum in Greece will be held this upcoming weekend to decide if the Greek people would like to stay in the European Union and continue using the Euro, or exit the EU and revert back to their old national currency. What happens next is the million-euro question. A Greece exit (Grexit) should not have a large direct impact on other countries. But here are some lessens we can take away from the predicament facing Greece right now.

5 Lessons from the Greece Debt Crisis

  1. Emergency funds can be risky. Imagine you have a €10,000 rainy day fund stored in a savings account, equivalent to 6 months of your living expenses. But when you try to withdraw your money you realize that all the banks are closed, and there is a €60/person withdrawal limit at the ATM, assuming there’s still money in it. Unfortunately, that’s the grim reality right now facing the people of Greece. 😐greekatm-304635-greece-out-of-money-bank-machineBut don’t be surprised. History shows other countries have instated similar measures. Remember the riots in Cyprus a couple years ago when all the banks closed to prevent a run on deposits? It’s important to realize that risk comes in different forms. There’s capital risk, and then there’s liquidity risk. The money in the bank may be safe from losses, for now. But what good is having money if we can’t access it when we need to. 😕 This is why I trade a portion of my salary for silver and gold. Not for speculation purposes, but it’s so I can exchange them for cash whenever the banking system experiences a liquidity crunch.
  2. Diversify. The unemployment rate in Greece sits at 26%. To put that into perspective the U.S. unemployment rate during the Great Depression in the 1930s was 25%. But no country is safe from market cycles. Our GDP in Canada is already down 4 months in a row. Another 2 months of negative growth and Canada will literally be in a recession by definition. So we must invest globally. 🙂
  3. Learn how to budget. Greece feels stuck with debt because it can’t budge it. 😀 A debt to GDP ratio of 177% is simply unsustainable. The next highest indebted countries in Europe are Italy and Portugal, both at roughly 130%. But Puerto Rico, certain U.S. states, and Canadian provinces like Ontario are facing record public debt levels. Greece serves as a warning to what can happen if debt runs out of control.
  4. Discounted vacation to southeastern Europe. The Greek economy relies heavily on tourism and when money is in short supply many businesses become desperate for new customers. Many tourists in Greece recently had to cut their vacations short because they weren’t prepared for the bank closures but if you bring cash and credit cards you can find many attractive deals. A 7 day Mediterranean cruise package starts at under $1000/person, and is a great way to take advantage of the cheapening Euro and the ongoing Greek recession. I’m adding Athens to my list of potential holiday destinations to visit this summer. 🙂
  5. Don’t rely on the government. Germany has ordered austerity in Greece to reduce the country’s debt pile. Greek pensioners have already seen their benefits cut in half.. It’s a real challenge to pursue an even moderate left-wing policy in a world of capitalism. Pensions aren’t safe no matter where you live. Politics often compound economic problems. Last year, even in the U.S., Obama said that if the debt ceiling isn’t raised and the government shuts down then social security checks “won’t go out on time.” One solution to better financial security in the future is to develop our own retirement plans today. 😀

——————————————————————–
Random Useless Fact

Before 1982 Canada Day was known as Dominion Day. Happy Canada D-eh! everyone! 😀

 

12
Leave a Reply

avatar
6 Comment threads
6 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
7 Comment authors
Tony @ Stock Market ValuationSSTVivianneLiquid IndependencePaul N Recent comment authors
  Subscribe  
Notify of
RICARDO
Guest
RICARDO

Hi LI Having solid gold or silver or platinum or, or, or… is once way to think you are protecting your money. What happens though, as in Greece, if you have a pile of gold but no one has the money to buy it? Or if you are so desperate for that pint of beer you are willing to accept less for that onze of gold. Probably some one will always be there to buy precious metals but, again, maybe at a devalued price if your need for mead (couldn’t help myself, I meant cash) is overwhelming. You can always say you will sell out of the country but you have to get there first. Do you have the cash for transport, risk of theft both going and coming back, etc. I don’t want to be pessimistic but a lump of gold is not necessarily the safest hedge. What is? Some say CASH is KING. Aside form that, as you mention, this once again points to the politicians who spend the government’s money on lofty promises, pensions, health care, infrastructure, etc, that they have not prced out over the long term. They forgot that it is not their money to… Read more »

Retire29
Guest

Lesson #6 – Socialism Doesn’t Work.

I suspect that when Tsipras recollects to his people about how and why Greece defaulted, fault will be placed at the feet of the IMF and their “unreasonable demands” that crippled the Greek economy.

We’ll all know different, but I hope the root cause of all this mess (excessive entitlement programs and lavish public sector pensions) is not forgotten.

Eric

Paul N
Guest
Paul N

Nice post. I like PF blogs that combine facts with humor that make good points… You do a great job of that. Great points by Ricardo + Eric as well. Although if you read some of the comments using Flipboard and you follow Greece, you have to wonder if there is an alternative planet somewhere that is a backwards copy of earth…. I would really like to see a US unemployment rate that adds the 5.3% figure they claim to that other figure they seem to ignore… The lowest employment participation rate since 1978 ! http://www.tradingeconomics.com/united-states/labor-force-participation-rate There are a lot of people that want to work that gave up, many more with two part time or low paying jobs. Can you really include those as official jobs? You could make a case for the US not being far off from that high unemployment number, they just disguise it better. I’m not so sure I would want to plan a vacation in Greece anytime soon. I can’t support a country who’s leaders negotiate at a kindergarten level. Let’s hope Canada never sinks to the levels of a Greece. You can’t have 50 % of the population supporting the other 50% of… Read more »

Vivianne
Guest

I read some articles on reuters, the Greeks retire Ipin their 40s, the official age is still in the 50s. Before the financial crash, the government couldn’t sustain the salaries, so they ask people to take the early retirement package so they will pay less. Then a bunch of people sign up while they can. Their lowest pay was 850 euro, then reduce 20%, but that’s some massive numbers! especially they are still in their 40s and 50s. Almost 80% of the 250 billion euro borrowed were used to pay the pensions. Then they want to increase taxes. That’s not how it work. It promotes people to cheat on taxes, and the honest people will lose money or simply can’t compete. Increase taxes massively kills businesses. Solution for them, possibly exit the euro zone. Get back to their currency. Keep the pension at the same level say $600 euro = 6000 drachma … Initially. But quickly the drachma will decrease in value, so 6000 drachma, maybe worth 300-400 euro, this is sustainable. Greece can still manipulate the drachma to stimulate their economy. And they don’t have the massive debt any longer. Now, the current goverment probably had Greece exit plan… Read more »

SST
Guest
SST

re: 4. Discounted vacation to southeastern Europe.

Really? You really want to vacation in a heavily depressed country? Think about that. I know relatives who went to Greece last year (when things were “better”)…it was horrible. As you stated, with a quarter of the working population unemployed — which makes total unemployment much higher than 25% — the overall mood of the place is terrible, which makes for a depressing vacation, not a discounted vacation.

On the other hand, I visited Bali in the 00’s shortly after one of their bombings. Costs were very cheap and the people were both desperate and overwhelmingly welcoming at the same time (e.g. four Canadians were the only ones staying at a five-star resort…they dined with the owner every night and even got the use of his person car). But, the Balinese have never been a people/economy dependent on entitlements so even during a temporarily depressed economy there wasn’t much difference in public mentality.

Think twice.

Tony @ Stock Market Valuation
Guest

I think the biggest lesson here is that you can’t rely on the government. Too many Greeks trusted the ruling party when they urged Greek citizens to vote no in the referendum. Now that they’ve voted no, Greece is even worse off then before.