What the Heck's Going On in Greece?

If you have the unfortunate habit of checking your portfolio on an hourly basis, today has certainly been painful. So what gives with today's sudden market downturn?

It all started when Greece Prime Minister George Papandreou decided that instead of simply letting his government decide whether to accept the terms of the most recent bailout, he was going to put the entire measure up for a referendum to be voted on by Greek citizens.

Greece 101
It seems like we've been hearing about Greece for a long time, right? Well, here's a very (very) simplistic timeline that's led us to this point.

  • January 2001: Greece is admitted into the European Union.
  • November 2004: The truth comes out! One of the requirements for joining the EU is that a country's deficit cannot exceed 3% of its GDP. The government admits that for five years, it has not met this mandate.
  • December 2009: Papandreou announces the first of many austerity measures, cutting back on workers' pay and bonuses while raising taxes.
  • April 2010: EU finance ministers agree to a bailout package of 30 billion euros.
  • May 2010: After realizing that 30 billion euros might not be enough, the triumvirate of the EU, the European Commission, and the IMF agree to a bailout package of 110 billion euros.
  • July 2011: The EU approves another bailout, this time for 109 billion euros.
  • October 2011: Banks agree to write down 50% of their loans to Greece, and Greece is due another 100 billion euros in early 2012.

The decade -- and especially the last two years -- has wreaked absolute havoc on companies inside the country. Consider how some of Greece's largest publicly traded companies have fared since the start of 2009 -- a period of time in which the S&P 500 is up roughly 40%.

Company

What It Does

Drop Since January 2009

National Bank of Greece (NYSE: NBG  )

Finance

(85%)

Paragon Shipping (NYSE: PRGN  )

Dry bulk shipping

(78%)

Dryships (Nasdaq: DRYS  )

Primarily dry bulk shipping

(76%)

OceanFreight (Nasdaq: OCNF  )

Dry bulk shipping

(74%)

Aegean Marine Petroleum (NYSE: ANW  )

Energy

(69%)

Diana Shipping (NYSE: DSX  )

Dry bulk shipping

(40%)

Source: Google Finance.

That means a typical investment in these Greek companies is losing to the U.S. market by an astounding 100% or more (except in the case of Diana Shipping).

The scene inside the country
All along the way, there has been tremendous pressure on politicians, as the austerity measures enacted by international lenders have been wildly unpopular. Many protestors inside the country believe anything -- including Greece defaulting on its debt -- is better than the austerity measures they are facing.

Just last week, it looked as though eurozone leaders had finally cut a deal that would stop the bleeding. But in a bold move, Papandreou may very well give protestors what they want. The prime minister has flatly stated that the decision on whether or not to accept more bailout money -- and the further austerity measures that will accompany it -- should be put to a vote by his country's people.

It's impossible to tell whether the issue will ever even get to a vote, but one thing is for sure: Most investors don't like the move.

Why should we care?
It's not as if this is the first country to default on its debts. Here are some notable defaults from the past.

Country

Year(s) of Default

England

Three times before 1600

France

Eight times before 1788

China

1929, 1939

Nigeria

Five times since 1960

Russia

1998

Argentina

2001

Source: Globalpost.com.

Most recently, the world didn't end when Russia and Argentina defaulted. And though I was 10 years younger when they occurred, I don't remember my life being affected much. So why is everyone up in arms?

The Washington Post recently tried to spell out the worst-case scenario for a Greek default. It goes something like this:

  1. Investors will lose faith in Greek banks, leading to a run on the banks and a fall of the government.
  2. Those with money invested in fellow euro-backed countries experiencing trouble (Portugal, Spain, Ireland, and Italy) will transfer their savings to safer havens, creating a massive shift of money away from countries that need it the most.
  3. Leaders of stronger euro countries will leave the EU, leaving smaller nations to fend for themselves.
  4. Stock markets the world over will plunge. With depressed demand from European countries, the global economy enters a two-year recession.

Time to stock up on canned goods?
Will it happen that way? There's absolutely no way to know. And if fellow Fool Morgan Housel is right, things will likely turn out in a way that few are able to predict until the moment actually arrives. In the meantime, all we can do is wait.

If you just want a safe place to put your money, I suggest you check out The Motley Fool's special free report "Secure Your Future With 11 Rock-Solid Dividend Stocks." The report is yours today, absolutely free!

Fool contributor Brian Stoffel knows he glossed over much of the nuance involved in the situation, and only offers this as a view from 50,000 feet up. He does not own any shares of companies mentioned. You can follow him on Twitter at @TMFStoffel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy..


Read/Post Comments (13) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2011, at 4:44 PM, alessandrominon wrote:

    i feel that right now the risk of losing everything investing in a company like NBG is far outweighed by the possibilities of getting a multibagger 3x? 7x? togive an interesting and risky possibility to a portfolio a small 5%? part can be invested here or in similar stock. then wait!

  • Report this Comment On November 01, 2011, at 4:57 PM, Hawmps wrote:

    Greece slipped the world a Jeffery... stroke a fury wall.

  • Report this Comment On November 01, 2011, at 5:01 PM, TMFHousel wrote:

    Good article.

  • Report this Comment On November 01, 2011, at 5:22 PM, EnigmaDude wrote:

    Greece, the home of democracy, is practicing what they preach. Don't know if it will work but that is what I see. Could be a great opportunity for those brave (or foolish) enough to take the risk and buy a bunch of shares of some of those Greek shippers. There is a good chance that at least some of them will survive and prosper eventually.

  • Report this Comment On November 01, 2011, at 5:31 PM, xetn wrote:

    Greeece, the home of democracy, has been about as socialist for a long time. They have been buying votes for years and have convinced their citizens that they have a right to almost anything. That is why the austerity program will fail and why the prez called for a vote. He will not have to answer for the failure. He will have to answer for his failure to lead.

    Greece, and probably the rest of the PIIGS will default on their loans and the result will be the collapse of the Euro and probably the EU.

  • Report this Comment On November 01, 2011, at 5:33 PM, MDW1954 wrote:

    Greece joined the European Union in 1981. FACT.

    Not 2001.

    There is NO condition about joining the EU being linked to a 3% deficit. FACT.

    Are you confusing the Eurozone with the European Union?

    Looks like it.

  • Report this Comment On November 01, 2011, at 5:38 PM, midnightmoney wrote:

    brief or not, I thank you for your article

  • Report this Comment On November 01, 2011, at 5:46 PM, eremmell wrote:

    Misleading article. The dry bulk shipping stocks suck not because they are based in Greece, it is for an entirely different reason: BDI has tanked (showing evidence of bottoming in the past few months), and there is an oversupply of ships.

  • Report this Comment On November 01, 2011, at 6:20 PM, TMFCheesehead wrote:

    @MDW1954-

    I stand corrected. It is, in fact, the Eurozone that I am referring to. Thank you for spotting that!

    @eremmell-

    That's fair enough. I would have pulled from a wider base of Greek stocks, and I did include some outside of shipping, but these were the biggest ones within the country.

    Brian Stoffel

  • Report this Comment On November 01, 2011, at 6:59 PM, CassandraSays wrote:

    Before raising taxes (increasing the rate), the Greek government should try raising taxes (collecting at current rates).

    Tax evasion is the Greek national sport.

  • Report this Comment On November 02, 2011, at 11:58 AM, DJDynamicNC wrote:

    Austerity has been kicking the Eurozone while it's down for the past two years. It's no wonder Greece is sick of it.

    Moreover, the banks that agreed to accept 50% losses on their loans - you know, the way the market is supposed to work, where you lose when you make a bad loan - are already trying to wiggle out of it.

    This move puts the power in Papandreou's hands; the Eurozone banksters can't risk a Greek default or the whole edifice comes tumbling down. That means they'll have to honour their agreement to eat 50% of the losses if they want the Greek government to push for the referendum to pass.

  • Report this Comment On November 05, 2011, at 8:51 AM, dbtheonly wrote:

    Referendum canceled. PM resigns & urges coalition National Unity Govt.

    Looks like they're doing everything possible to make this work.

  • Report this Comment On November 06, 2011, at 5:15 PM, Eerkes wrote:

    I remember how positive people were on greece's chances to increase their tax collection. It was stated that such a large number of Greeks were evading taxes that they could improve their receipts simply by collecting from those people what they were currently evading. I think we, myself included have all learned it is a lot easier to get more taxes from people all ready paying, than it is to get new people to pay. Consider this in the US, every time we shift people off the bottom of the tax rolls, it becomes nearly impossible (politically) to ever get them back.

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