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Spyns' clients have long lamented the greenback's dismal performance against the euro. Despite a recent uptick in Europe's common currency, I'm bearish on its performance vs the dollar. Today the Greek government announced sweeping measures to reduce the country's budget deficit - widely reported to be between 12-13%. The markets reacted somewhat positively boosting the euro to a recent high against the greenback. It won't last.
Greek PM Papandreou has handled this masterfully. First, he blamed the country's woes on the former government. Second, he blamed the evil bankers "attacking" his country. Third, he announced budget cuts and wage freezes that will never materialize. And finally, to force Europe to lend Greece more money, he is now musing about International Monetary Fund assistance. Papandreou knows full well French President Sarkozy would never allow his archrival Dominique Strauss-Kahn, conincidentally head of the IMF, to lead a rescue. Round 1 to Greece.
The next rounds will be more difficult. Yes Papandreou will have photo ops with Merkel, Sarkozy and even Obama. This will shift worldwide attention from Greece's debt for a time. Merkel cannot and will not give Greece any money but the photos will suggest otherwise. President Sarkozy can't resist the world stage so he'll announce some sort of European superfund or similar French-led initiative. Yet with regional elections looming and that country's own financial difficulties, Sarkozy's words won't result in any short-term help - particularly without Germany writing cheques for French promises. So where does that leave us?
With an economy roughly the size of Massachussetts, Greece is a rounding error in financial circles. Why so much media attention? Because Greece is a terrifying example of systemic financial mismanagement and every developed nation is going down the same path. Americans have long moaned about European welfare states, but while France and Germany provide universal healthcare, the United States squanders even more on the military.
Governments cannot continue deficit spending forever - something the Greeks learned last month. Papandreou has danced his way around this crisis, but the music will eventually stop (perhaps in Berlin Friday). Greeks now owe approximately 27,000 euros (approx $37,800) per head not counting interest. If you believe the media reports, Greece has to roll over a substantial amount of its debt in the coming months. Papandreou should shine up those dancing shoes - as should Berlusconi, Sarkozy, and Zapatero.
What does this have to do with the Tour de France? A long-awaited correction in the euro-dollar exchange rate is what it means. Spyns sells its Tour de France tours in dollars yet pays for everything in euros. This has largely been a disaster because of the "let's invade the world on credit" US conflict dollars. But a change is coming and let's just hope the euro implodes first...at least in time for Lance Armstrong to ascend the Paris podium for an 8th time.
