In Part 1 of this week’s recap, I covered the fallout from Super Tuesday’s election results.
Here in the second part, I want to look at the week’s other two major stories. All week long, international investors have been nervously watching what’s going on in Greece. The big question was whether or not the Greeks could get private investors to “voluntarily forgive” a significant portion of their debt. If they couldn’t, then Greece most likely would default on its national debt. But at the last minute, a deal was reached, and disaster was averted…for at least a couple of months, until we have to go through all of this again!
Predictably, much of the financial media is treating this as another “victory” in the slow progression toward real EU integration. But others are saying that it is nothing of the sort. This is just a “kick the can down the road” measure, and as commentators are pointing out, it sets a very dangerous precedent for the future. I noted back in January that the Greeks believe they’re in a strong bargaining position with the banks. And they are…up to a point.
With this latest deal, they have likely gone past that point. It is becoming clear that the self-deluding Greeks think that they can continue forcing the banks to fund their debt, even as they keep adding to it. They also think that they can then retroactively force the banks to “forgive” huge portions of that debt while they move along their merry way! This sort of brazen corruption is central to nearly every facet of Greece’s public life, so now the Greeks are coming to believe that they can force everyone else to play by the same rules.
They are wrong. Later this year, that may become very clear very quickly. The banks are willing to go along with this nonsense for now, because there’s still enough money for them to “squeeze” out of the bonds they hold. But we’re rapidly approaching the point where that will no longer be the case, especially since both Portugal and Spain will soon join Greece as countries that have simply run out of money. And as soon as that becomes apparent (possibly sometime this summer), private investors will slow down on the buying of new debt, and then everything will come to a head…quickly.
What happens after that? There are several plausible scenarios, none of them pleasant. It’s still too soon to gauge how it will all play out, especially given that we’re all in uncharted territory now. But what is certain is that we’re heading toward the “money really has run out” scenario very quickly. And this latest “deal” has shown international investors that they cannot trust the Club Med nations to honor any of the agreements that they’ve made before. So now the “money men” will start fighting back. Interesting days to follow.
The second international event concerns Iran. President Obama met with Prime Minister Benjamin Netanyahu of Israel this week, in an attempt to convince him that Israel doesn’t need to attack Iran yet, because the U.S. is fully committed to keeping Iran from getting a nuclear weapon. The Israelis don’t believe that President Obama is even remotely interested in their safety — particularly if helping them might jeopardize his his re-election efforts — so our Commander-in-Chief had his work cut out for him in making this case.
But as is so often the case, the President tripped over himself and messed it all up. After several days of staying on message, he just couldn’t hold in his real feelings any longer! So when he held his press conference this week, he lashed out at the Republicans, claiming that their talk of war with Iran was reckless, and that there’s still more than enough time for (light) sanctions alone to work. And with that comment, he blew away any remaining illusion that he has any real intention of coming to Israel’s defense.
It certainly doesn’t help that his allies have been talking to the media for months about how “we can live” with a nuclear Iran and thereafter “contain” the situation. ‘Tis truly an impressive level of incompetence here!
President Obama has massively bungled the Iranian problem from the start. And now he has painted himself into a predictable corner. If the Israelis attack Iran this summer, his re-election prospects become a lot more dicey. But he has left the Israelis with little choice but to attack, at least if they’re serious (and I believe they are) about keeping Iran from becoming a nuclear power. Also, he has given them the opportunity to do so in a way that will hurt him the most while also keeping the Democratic Party in their corner.
I’ll go more into those details in a later post (perhaps on Monday). Suffice it to say, matters in Europe and the Middle East are growing more unstable with each passing week. It’s unlikely that we’ll see any major changes for at least another few months. But when the tectonic plates begin to shift, we’ll feel the subsequent quakes all over the world. So again: enjoy the calm while it lasts. And get ready to hold on for the ride!
I hope you all have fun plans for the weekend. See you next week.