OPINION – I don’t know about you, but I am going to pay a lot of attention to news reports out of Greece this weekend.
You see, they’ll go to the polls there on Sunday to elect a new government. If the Syriza party, headed by Hellenic Parliament member Alexis Tsipras, takes control, it could, according to some economists, spell the end of the Eurozone, a 17-nation group financially tied to the euro.
If that occurs, the table could be set for a worldwide economic depression, and it won’t matter if you live in Athens, Georgia, Athens, Greece, or even St. George, Utah. You will feel an impact.
That’s why next week’s G20 Summit meeting here in San Jose del Cabo, in Baja California Sur, Mexico, is so vitally important.
Global economics was once the realm of nerdy accountant types who stared through thick, horn-rimmed glasses at columns of numbers day in and day out. Their proclamations were esoteric dissertations on the subtleties and nuances of the impact of the U.S. dollar on the yen, the peso, the deutschmark, and other foreign currency. Their pronouncements went largely unheard by a U.S. population bent on consumption and self-absorption.
Now, however, there is simply too much at stake because the United States has not been the only nation suffering economic woes. In fact, it has been much worse in Europe where France, Italy, Spain and Greece have been having trouble paying their bills.
Italy has been fighting valiantly to survive its problems. France bit the bullet and underwent some economic reform. Spain? Just last week, the European Union approved a 100-billion euro bailout to assist Spanish banking institutions that were tanking as a result of a housing bust that makes the one in the U.S. pale in comparison. The jury is still out on whether the bailout will work or not, particularly in the case of Santander Bank, a large international financial institution.
Greece, however, continues to squirm in the hot seat. Just six weeks ago, elections were held to establish a new parliament. The results were inconclusive, leading to the vote on Sunday. During the interim, however, Syriza, led by the 38-year-old Tsipras, has emerged as a suddenly powerful political party, based pretty much on the premise that the nation should not be held to previous agreements made with the last government. Tsipras says that the bailout agreements should be renegotiated or even thrown out.
In effect, Tsipras and his backers are threatening to switch from the euro to the drachma, which could very well result in the collapse of the Eurozone.
Why should the U.S. care?
There is a lot on the line here.
Crashing of the euro would result in further strain to the U.S. economy. You see, about a quarter of U.S. exports go to Europe. A sharp decline of the euro means that suddenly, those goods and services offered by the U.S. would be too expensive for members who trade in euros to afford.
That means that if you are involved in the manufacture of computer equipment, semiconductors, medical equipment, industrial machinery, plastics, chemicals, petroleum products, automobiles, food, or beverages, or any of the other products the U.S. exports to Europe, your industry could take a hit. Even if you are not associated with any of those industries, chances are you are involved with a bank in one way or another and the U.S. banking industry holds more than $113 billion in loans to Greece, Ireland, Portugal, and Spain. If any of those countries default you could look forward to further tightening of credit and a steep increase in interest rates.
Because Los Cabos is an international travel destination, we see a lot of foreign visitors here. We get a daily reminder of the current economic state of affairs when we walk into many of the stores, which have the exchange rate between the U.S. dollar and Mexican peso posted. We know when the dollar is strong, we know when it is weak. We see the daily fluctuation as the U.S. tries to steer itself out of its economic tailspin.
We also know how the U.S. economy is doing by looking at the local resorts and hotels. A lot of visitors means that the dollar is strong. Empty rooms means empty pockets.
I don’t know exactly how much can be fixed while the various heads of state meet here next week, but I’m hopeful they do more than just relax on our beautiful beaches.
There’s just too much at stake.
Ed Kociela is an opinion columnist. The opinions stated in this article are his and not representative of St. George News.
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Copyright 2012 St. George News.