• Skip to main content
  • Skip to footer
MENUMENU
  • Home
  • About Us
    • Our Philosophy
    • Choosing a Financial Planner
    • Legal and Regulatory
    • Team
    • Careers
    • Contact Us
  • Our Services
    • Financial Planning
    • Ongoing Financial Guidance
    • Portfolio Management
  • Financial Planning Basics
    • Continuing Care Retirement Communities (CCRCs)
    • Retirement Planning and Cash Flow
    • Social Security
    • Taxes
    • Insurance & Risk Management
    • Investments
    • 401(k)
    • Real Estate
    • College
    • Liquidity
    • Divorce
    • Estate Planning
    • Sensible Updates
  • Resources
    • The Types of People We Help
    • Webinars
    • Blog
    • Videos
    • Financial Planning Guidebook
    • Continuing Care Retirement Communities Guidebook
    • Primers
    • Financial Planning Links
    • Client Links
    • Financial Planning for Older Adults
  • Contact Us
Sensible Financial Planning

Sensible Financial Planning

Follow Us

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube
Client Links

Call Us Today
781-642-0890

Greece, Europe and the US

by
Rick Miller
Ph.D., CFP® - Founder

June 1, 2012

The financial crisis in Europe, with a focus on Greece, which we’ve been discussing for the last two to three years, appears to be coming to a head. I’ll provide a brief summary of past events, then describe some potential outcomes.

How did we get here?

  • Greece has very poor economic infrastructure. The public sector is very large (many people are employed by the government). The tax system is very inefficient, and collects relatively little in taxes. As a result, the Greek government has run, and continues to run, large deficits. That is, it spends much more than it takes in.
  • Greece owes a lot of money. At the beginning of the crisis, Greece’s sovereign debt, the amount owed by its national government was over two times its annual national income.
  • Greece uses the Euro as its national currency. Because Greece can’t just “print more money,” it has no ability to inflate its currency. Inflating its currency, or reducing the value of that currency, would reduce the value of its debt in purchasing power terms, making it easier for Greece to pay, and also making Greek products and services more attractive on international markets, which would also make it easier for Greece to pay.
  • Greece made commitments to other Eurozone governments.In return for a reduction in the value of its debts, and ongoing loans from other European governments and institutions, Greece promised to reduce its deficit – to spend less as a government and to take in more in tax revenue. These promises collectively are considered to be an implementation of “austerity.” In addition, Greece is paying interest and principal on its remaining (still growing) debt.
  • Austerity has produced very difficult economic times for the Greek people. Many public sector employees have lost their jobs. The government has reduced subsidies and retirement benefits. The economy has contracted significantly. Some have compared the economic difficulties in Greece to our own Great Depression of the 1920s and 1930s.
  • There is increased political support for breaking Greece’s commitments to the Eurozone. As the economy has worsened, more and more Greeks have become unhappy with “austerity.” The Syritsa political party has become a focus for this view.

Now what? There are basically three possibilities:

  • More of the same. The Greeks could complain a lot, but keep their commitments, at least for now. In the near term, it is likely that economic conditions in Greece would continue to worsen. It is also likely that popular support for breaking Greece’s commitments would continue to grow.
  • The Eurozone could relax its terms. Greece might obtain permission to soften some of the austerity measures it has imposed. This might allow more time for the remaining austerity measures to take effect, reducing the Greek government’s deficit, and giving lenders more confidence. In addition, economic conditions might improve, and political support for Greece’s remaining commitments might increase.
  • Greece could break its commitments. This is the scenario which causes the most concern, because its implications are so uncertain. However, likely implications include (with the first two very likely):
    • Greece would default on its remaining debt. The holders of this debt – mostly Greek and other European banks – would take very large losses.
    • Greece’s lenders would refuse to lend Greece any more money. Greece would then have an enormouslydifficult time economically. Its banking system would likely fail. Economic activity would slow even more. Greece would almost certainly have to issue its own currency to meet its internal requirements such as paying government employees and government benefits. The transition costs would be extremely large.
    • The banking system in the remaining Eurozone countries would likely require government support to offset their losses on Greek debt. These bailouts would impose costs on Eurozone taxpayers. Essentially, they would pay off the loans that bank depositors (through their banks) had made to Greece, and that Greece defaulted on.
    • Lenders might become increasingly doubtful about their loans to other Eurozone countries in financially difficult situations. This so-called “contagion” would most likely affect Portugal, Spain and Italy. Interest rates on the debt of each of these countries would rise, making it more costly for them to borrow (we are seeing some evidence of this now in Spain (especially) and Italy). At the extreme, these so-called peripheral countries might also be forced to default on their debts, and to issue their own currencies. This would have a much larger negative impact on both the European and world economies.

What should you do?

  • Remember that Greece is a small country. While life in Greece would be enormously unpleasant if Greece breaks its commitments and leaves the Euro, the immediate effect on the rest of the Eurozone is likely to be manageable, although there will be much wringing of hands and gnashing of teeth.
  • Remember that Greece is in Europe. While the US and Europe are highly integrated, and poor economic performance there will affect our economy, the impact will be less here than there.
  • Continue to manage your own financial affairs in a sensible way. Focus on the actions and decisions that you can control. Live within your means. Keep your investment risk within your risk capacity. Limiting your investment risk includes both keeping your exposure to stocks at a level that is appropriate for your financial situation and maintaining a diversified portfolio.
  • Contact us if you still have concerns. Greece’s problems pose very significant financial issues for itself and for Europe. I think it is important to keep them in perspective – I do not mean to minimize them.

More articles by Rick Miller Filed Under: Investments Tagged With: Economy

Footer

Services

  • Financial Planning
  • Financial Guidance
  • Portfolio Management

About Us

  • Our Philosophy
  • Team

Resources

  • Blog
    • The Types of People We Help
  • Financial Planning Guidebook
Sign up for our Newsletter

Follow Us

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

Locations

Massachusetts

203 Crescent Street, Suite 404

Waltham, MA 02453

Phone: (781) 642-0890
Fax: (781) 810-4830

 

California

600 B Street, Suite 300

San Diego, CA 92101

Phone: (619) 573-4131​

Disclaimer

This content reflects the opinions of Sensible Financial®. We may change it at any time without notice. We provide this content for informational purposes only. Although we endeavor to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability for a particular purpose or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. We do not intend the information contained in this website as investment advice and we do not recommend that you buy or sell any security. We do not guarantee that our statements, opinions or forecasts will prove to be correct. Past performance does not guarantee future results. You cannot invest directly in any index. If you attempt to mimic the performance of an index, you will incur fees and expenses which will reduce returns. All investing involves risk. You can lose any money you invest. There is no guarantee that any investment plan or strategy will succeed.

More important additional information and full disclaimer.

Copyright © 2025 Sensible Financial · All Rights Are Reserved
Legal Disclosure