It's been a while since we've heard much about the Greek debt crisis. Americans frequently succumb to the "out sight, out of mind" syndrome - that if we're not talking about it then it must not be an issue any more.
Um, not so much. Here's what's been happening in the cradle of civilization.
Lucas Papademos assumed the Prime Ministership on November 11th last year (if you're keeping score that's 11.11.11; seems like that should mean something but I'm not sure what). He is an economist who was governor of the bank of Greece from 1994-2002 and vice president of the European Central Bank from 2002-2010.
Papademos's primary goal is to get the European Union bailout and pave the way for elections (scheduled for later this month). His stated priority is to keep Greece in the Eurozone.
Last month Papademos told business and labor leaders that the triumvirate of the European Union, the International Monetary Fund and the European Central Bank is looking for Greece to instill changes, including adjusting the minimum wage, abolishing Christmas and summer vacation bonuses and automatic wage increases.
The bottom line is that Greek workers will have to accept significant income reductions for a default to be avoided. The problem is that Greece is an entitlement society, and when people have been given something automatically or for free for an extended period of time, they tend not to like it when that gets taken away. (The same applies to welfare entitlements here in the United States. That's another discussion.)
The bottom line is that there is no easy way out of the Greek debt crisis (and the Greek debt crisis is a mini (or maxi?)-version of what the entire European Union faces). Changes will have to be made, and the impact from those changes will range from mildly distasteful to quite uncomfortable to extremely painful to a whole lot of Greek people.
Here's a simple way to think of it: It's just like losing weight. Pick any fancy diet plan or program you want, the only way to lose weight - the ONLY way - is to burn more calories than you take in. That means you exercise more (which, when done correctly, can be uncomfortable) and eat less (which, when done correctly, just isn't as much fun).
Well, the only way out of a financial crisis - the ONLY way - is to bring in more than you spend. As it happens, because of the dismal condition of their economy and that fact that for years the government has given out far more than it takes in (try that with your checking account) the Greeks are more or less out of financial income resources. That leaves spending less, which means every Greek is going to have to sacrifice.
The reason the crisis in Greece has such an impact on mortgages in the United States is that just about anything in the U.S. is considered a much safer investment, certainly than anything even remotely related to Greece and pretty much any significant investment in Europe as a whole (because while Greece is the most precarious situation in Europe, it is far from alone. Spain, Italy, Portugal and Ireland, among others, are also in deep fiscal trouble). That makes investment in things like mortgage backed securities attractive, and that keeps rates down.