Messe Duesseldorf North America

The Big Fat Greek Economic Meltdown

Tweet  

  

  

 delicious  

  

Has anyone been paying attention to what’s been going on in Greece for the past few months?

If not, you probably should be – for there are some remarkable things that are happening there right now that have a direct impact on worldwide finance, exchange rates, and exports – all of which are relevant to your company’s export strategies and international trade show participation!

In a nutshell:

Years of unrestrained government spending has left Greece, a country of just over 11 million, with a national debt of upwards of more than 120% of the nation’s annual GDP.   Greece has also not been in compliance for some time with the EU’s rules that Eurozone members keep their deficit below 3 per cent of GDP. (Greece’s deficit is currently reported at 12.7 %.)

Like many countries, the Greek government relies on borrowed money to balance its books. However the worldwide recession of the past couple of years has made this harder to achieve because tax revenues have been falling while public sector spending and welfare payments have been rising.

Investors and market speculators have lost confidence in the Greek government's ability to tax and borrow, and therefore have been demanding increasing interest rates to offset the risk that they might not get their money back.  And the higher it’s borrowing costs, the more difficult it has been for Greece’s economy to outgrow the problem.

To muddy the waters further, Greece is one of 16 members of the Eurozone.  This means it cannot act on its own (i.e. devaluate its currency, cut interest rates, etc), but must defer to the European Central Bank in Frankfurt, Germany.  All the Greek government can really do independently is rely on public sector service cuts – which will undoubtedly extend and deepen the country’s recession, foment civil discord, and further reduce tax revenues which will make it even more unlikely the country can meet its future debt obligations.

The big concern has been that Greece might walk away from its existing debts and simply try to go at it independently – and potentially triggering another round of similar defaults in other indebted European countries (i.e. Spain, Portugal, Ireland), eventually placing the value (and perhaps existence!) of the Euro in peril.

A Solution at Hand?

In the first weekend of May 2010, EU leaders led by German Chancellor Angela Merkel stepped in to build a firewall in an attempt to protect its members from speculative attacks.  (If the EU had not acted to protect Greece from defaulting, the concern was that bond speculators and investors would bail from Spain and Portugal as well, seriously increasing the depth of the problem and threatening not just Europe but the rest of the world’s economy!)

So up to € 70 billion was allocated in an attempt to protect the Euro against further market speculation.  Nonetheless, worldwide markets have continued to sell of the Euro – resulting in its lowest value against the US Dollar in more than a year.

What does this mean for US exhibitors at our trade shows in Düsseldorf?

This infinitely complex problem has been boiled down to its most basic elements for the sake of this article.  But the net result in the short term is that US based companies can expect increased purchasing power abroad (your US$ will go further in exhibit space costs, booth rental, travel expenses, etc), but probably increased European competition because of the weaker Euro, and less purchasing power by European customers.