By voting “NO,” the Greek people have rejected austerity measures by the EU in order to receive bailout money to pay off their debts. It’s as if Greece gave a big middle finger to the EU!
It’s great that at least the people were able to vote on their future. You can see the jubilation in their eyes after the results were announced. However, the immediate consequence of the vote is an enormous amount of economic pain as foreign investors pull out, the stock market crashes, banks stop lending, retirement savings get trashed, and unemployment soars even higher. Ah, the sacrifices we make to stay free!
Unfortunately, all of us investors who have nothing to do with Greece will suffer as well. If you haven’t reviewed your asset allocation this year, I highly encourage you to do so today. The US stock market could easily correct by 10% as capital flees riskier asset classes.
The Greek people are not completely to blame for their economic woes. They simply operated in the confines of an inept government that promised too much. Voting for a politician who promises to give you a tax cut or allows you to retire by 50 with a lifetime pension makes logical sense. Who wouldn’t vote for such benefits?
Despite the upcoming difficulties for the Greek, we can look on the bright side. With close to a 200% national debt to GDP ratio, the Greek have been able to live way beyond their means for a very long time. And if you can get a debt haircut when it’s finally time to pay up, then all the better! Surely Portugal, Italy, and Spain are thinking of ways to gain more favorable debt terms with the EU as well.