Financial Crisis ... Averted?

Financial Crisis ... Averted?

Why you should care

Because we’re all fat on easy money, apparently. 

Are we nearing resolution in the multiyear Greek drama?

Quick recap: On Sunday, Greek voters rejected terms of a proposed European bailout. But late this week, the leftist government went above its voters’ heads, and agreed to meet most of the proposal’s terms. Markets rose. The concession could stave off a eurozone crisis — if everyone signs on.

Last week, Simon Constable described all the political economic tumult as “ripples traveling across the surface of a pond.” What’s underlying the Greek crisis, and flux across all sorts of capital markets, is too much easy money, he argues. Specifically, reductions in interest rates by central banks made borrowing cheap, and as a result, Greece over-borrowed. You can read Constable on Greece and Puerto Rico here. And for another effect of easy loans on big markets, take a look at Steve Butler’s profile of Beijing-based economist Michael Pettis. He’s been warning of much the same in China for years, and the past weeks seem to have vindicated him. Learn about “China’s Market Crash — and the Man Who Saw It Coming” here.

For a bit of geopolitical context, check out Sean Braswell’s piece this week on the potential fallout of a Grexit. He argues that Greece’s growing detachment from Europe could pave the way for a broader strategic alliance with Russia. Indeed, our favorite bare-chested dictator phoned Greek Prime Minister Alexis Tsipras after Greece’s no vote, and the latter has visited Russia twice over the past two months.

Don’t neglect the historical context, either. For many Greeks, the eurozone drama recalls a German-dominated past, and not happily. Today, Greeks must surely wonder how it is that Germany today has nearly complete control over Greek economic policy. After all, joining the eurozone was supposed to strengthen Greek democracy and independence, not undermine it. Read how “Germany Ravaged the Greek Drachma” here.

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