As Greece Fails, So Goes Europe. The Next Disaster? The World.

by Margaret Bogenrief

The financial world is wrong.  Despite what you've read, heard, or seen, Greece (and the world's financial sky) is falling. 

Greece is on the brink of collapse.  And the nation's economy is, for lack of a better word, f#cked. This means the entire world is f#cked. The Depression is looming and we are doing nothing to stop it.

Allow me to explain.

Over this past weekend, the European Union's "Powers-That-Be" (aka finance ministers) met in Luxemburg to come to agreement on a long-term financial solution for the Greek "problem."  You know, the massive financial crises that are, combined with the financial stresses with which Portugal and Ireland, currently stressing the European Union to the breaking point.   

What wisdom emerged from this weekend?  The EU decided, after days (and, arguably, months) of deliberation, that Greece is NOT on the verge default.  "Let Germany Take Care of It!" seemed to be the mantra of the weekend, as member-states of the European Union "agreed to increase the European Financial Stability Fund (EFSF) to EUR440 billion, which provides a lifeline to the euro zone's most distressed economies."  In short, "Last week, Ms. Merkel was forced to abandon Germany's tough stance amid warnings that it was creating a dangerous blockage in the vital efforts to rescue Greece." 

So...how has the financial world interpreted these recent events?  With a collective and international shrug.  "Germany's Got This," was essentially the market's reaction, with both the Euro and Oil gaining significantly, with Germany once again playing the role of financial savior to yet another European Union screw-up.  This is a historical solution that has played itself out too many times and, in this case, has run it's course.  An ugly fall is coming.

First, some history: broadly, the European Union, and Germany's perpetual financial support of it (essentially a decades-long "I'm sorry for the Second World War"), is an unsustainable economic entity - a product of post-World War 2 political idealism that ignores the basic tenets of 1st, 2nd, and 3rd world economies (making Romania an equal player with the manufacturing giant that is Germany is economically idealistic at best and financially dangerous in practice).   The entity's essential foundation of equality has paved the way for both the Greek disaster and the world's mistaken belief that Germany can swoop in and save this economic mess.

Fast forward to today: because the business press and pundits (and, by extension, press) trumpets "The European Union Saves the Day!" while sincerely believing that "Greece is Saved From Default!" the financial universe has lost interest in this on-going saga and calibrated accordingly, focusing once again on oil prices and the US Dollar's (USD) ups-and-downs in the world market.  We've collectively forgotten the key fact that Germany (and the European Union) can do only so much to "save" Greece and it's ilk.  There are only so many levers to pull and only so many escape hatches through which these economies can travel.  That means that despite historical evidence to the contrary, Germany cannot a continent sustain.

What does this mean for Greece and the broader economic world?  In short, we are all financially, well, screwed.

No amount of positive press or German cash infusions or financial finagling can save Greece.  The fundamentals underlying both this specific crisis and the European Union more broadly guarantee there is no "way out" of this looming catastrophe.  Greece will fail.

Make no mistake and mark our words: within the next 12 months, the Greek economy will INEVITABLY default, plunging not only the European Union but also the broader financial world into an economic depression the likes of which we haven't seen since 1929.  We can dance around, ignore, or paint pretty financial pictures over the economic realities of the situation, but the Greek economy will default.  The economic, financial, and political fundamentals means there is no saving it.

And with it will go a fracturing of the European Union, leaving a core of "financial foundation" countries (France, Germany, and maybe 2-3 others) left to clean up the continental economic mess.  Consequently, when the Euro inevitably collapses in value, investor dollars will split between the USD, Swiss Franc, and Japanese Yen, severely depressing the majority of the other 1st world economies. With these central importers rendered relatively economically helpless, commodities prices will collapse, leaving the world's 2nd and 3rd tier economies and exporters even further depressed, creating a global financial crisis and chasm that will take nearly a decade to render itself right again.

In short, while the financial, institutional, and investment "experts" are out there loudly proclaiming "Greece is Saved!," please keep in mind these were the same experts who never saw the 2007, mortgage, or credit crashes coming.  Well, we see this one coming and are doing our best to let the world know.

And please don't say we didn't warn you.

Margaret Bogenrief is CEO of ACM professional Services and a former news anchor.  She has an MBA and Masters in Public Policy from the University of Chicago--as well as a BA in Economics.   Find her at  www.acm-partners.com  She blogs at  www.beautifullycomplex.com.