The Independent Market Observer

Greece, the Eurozone, and Jury Duty

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jun 23, 2015 12:25:00 PM

and tagged In the News

Leave a comment

greeceThis will be a short post, as I’m headed out for jury duty this morning. It’s been some time since I last reported, and I have to admit I’m not very excited. It is a civic duty, though, so off I go.

The question is, Will the eurozone show up for its own version of jury duty?

A stopgap measure for Greece

Greece is in the headlines again this morning, this time with a pending deal that will apparently get the country through the next month. It won’t, however, solve the real problem: that Greece simply cannot pay its debts. We'll undoubtedly be having this discussion again in the next couple of months, but for now, markets are rallying on the news that the problem has been “solved.”

Europe’s bigger issue

Interestingly, Europe finally seems to be getting to grips with its own bigger problem—that is, for a monetary union to work, you also need fiscal union. In other words, if you insist that poorer areas live by rich-area rules, you have to be willing to subsidize them so they can afford it.

Greece essentially ran up its debts while buying German goods. When the Germans call on Greece to pay its debts, they have to remember that German jobs depend on the Greeks continuing to buy. You don’t have the jobs without the customers, and the customers need money to pay. In a very real sense, when the Germans write checks to the Greeks, the money flows right back into their own pockets.

We see something similar here in the U.S. Many states are net recipients of federal money, which means other states have to be net payors. You can debate which states are worse, and why, but the fact remains that if two very different economies—like New York and South Carolina, or Maine and California—are to keep the same monetary policy, there has to be some kind of balancing mechanism. Fortunately, in the U.S., there is.

Will the eurozone make it work?

You might argue that this is the moment when the European Union (and especially the eurozone) is making an existential decision: Does it really want to pay what it takes to stay together? Is it going to show up for jury duty?

The Greeks have to start paying their taxes and normalizing their government programs. The Germans have to realize that writing checks is inseparable from continuing to export half of their GDP.

No one wants to show up, but if they don’t, the whole thing will collapse.

In my view, the odds are against the eurozone sticking together. The politics have deteriorated enough that making an effective case to the voters would be challenging. That said, the fact that the conversation has finally started makes eurozone survival at least possible.

Of course, whether Greece will still be there is an open question. But if one good thing has come out of the ongoing Greek crisis, it’s that Europe is now facing the real question at the heart of its survival.

                      Subscribe to the Independent Market Observer            

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®