5 Lessons from Greece’s Default

The European debt crisis is so confusing, it’s like Greek to me. lol 😀 As of yesterday Greece became the first developed country to default to the International Monetary Fund (IMF) to the tune of €1.6 billion. Overall Greece owes about €300 billion to all its creditors.

A referendum in Greece will be held this upcoming weekend to decide if the Greek people would like to stay in the European Union and continue using the Euro, or exit the EU and revert back to their old national currency. What happens next is the million-euro question. A Greece exit (Grexit) should not have a large direct impact on other countries. But here are some lessens we can take away from the predicament facing Greece right now.

5 Lessons from the Greece Debt Crisis

1. Emergency funds can be risky. Imagine you have a €10,000 rainy day fund stored in a savings account, equivalent to 6 months of your living expenses. But when you try to withdraw your money you realize that all the banks are closed, and there is a €60/person withdrawal limit at the ATM, assuming there’s still money in it. Unfortunately, that’s the grim reality right now facing the people of Greece. 😐But don’t be surprised. History shows other countries have instated similar measures. Remember the riots in Cyprus a couple years ago when all the banks closed to prevent a run on deposits? It’s important to realize that risk comes in different forms. There’s capital risk, and then there’s liquidity risk. The money in the bank may be safe from losses, for now. But what good is having money if we can’t access it when we need to. 😕 This is why I trade a portion of my salary for silver and gold. Not for speculation purposes, but it’s so I can exchange them for cash whenever the banking system experiences a liquidity crunch.
2. Diversify. The unemployment rate in Greece sits at 26%. To put that into perspective the U.S. unemployment rate during the Great Depression in the 1930s was 25%. But no country is safe from market cycles. Our GDP in Canada is already down 4 months in a row. Another 2 months of negative growth and Canada will literally be in a recession by definition. So we must invest globally. 🙂
3. Learn how to budget. Greece feels stuck with debt because it can’t budge it. 😀 A debt to GDP ratio of 177% is simply unsustainable. The next highest indebted countries in Europe are Italy and Portugal, both at roughly 130%. But Puerto Rico, certain U.S. states, and Canadian provinces like Ontario are facing record public debt levels. Greece serves as a warning to what can happen if debt runs out of control.
4. Discounted vacation to southeastern Europe. The Greek economy relies heavily on tourism and when money is in short supply many businesses become desperate for new customers. Many tourists in Greece recently had to cut their vacations short because they weren’t prepared for the bank closures but if you bring cash and credit cards you can find many attractive deals. A 7 day Mediterranean cruise package starts at under $1000/person, and is a great way to take advantage of the cheapening Euro and the ongoing Greek recession. I’m adding Athens to my list of potential holiday destinations to visit this summer. 🙂
5. Don’t rely on the government. Germany has ordered austerity in Greece to reduce the country’s debt pile. Greek pensioners have already seen their benefits cut in half.. It’s a real challenge to pursue an even moderate left-wing policy in a world of capitalism. Pensions aren’t safe no matter where you live. Politics often compound economic problems. Last year, even in the U.S., Obama said that if the debt ceiling isn’t raised and the government shuts down then social security checks “won’t go out on time.” One solution to better financial security in the future is to develop our own retirement plans today. 😀

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Random Useless Fact

Before 1982 Canada Day was known as Dominion Day. Happy Canada D-eh! everyone! 😀