318: Have You Heard About Greece Paying Back It’s Debts?
PropertyInvesting.net www.google.co.uk 8pm 6 May 2010
No, we haven’t either. It’s going to be very difficult indeed. Euro 110 billion over 18 month from EU and IMF bail-out if ratified is a gigantic amount – about 35% of the country’s GDP.
Peak Oil: If it was not for Peak Oil, we think the Greek issue would never have surfaced and lead to talk of sovereign debt contagion. You see, the problem is that Greece imports all its raw materials. Oil, gas, coal, metals, wood – it has practically no natural resources, very little mining and pays huge import bills.
UK Comparison: So how’s this compare with the UK? The UK has a GDP of $2670 Billion and uses 1.8 million barrels of oil a day. That’s equivalent to only 2% of it’s GDP – hence for every barrel consumed, the UK delivers close to twice the units of productivity when compared with Greece. Of course the UK produces 70% of it’s oil needs, so the actual oil import bill is a paltry 0.6% of it’s GDP. Now you might see why the UK still has an AAA rating – for the time being at least (even if it's only for the next month). The UK also produces about 70% of its gas needs, and still has some coal mining and does not import any electricity (unlike Greece). It also has a lot of water, nuclear power plants and rich farmland - less food imports per capita.
Problems Mount: The problems with Greece are multi-facetted:
· Projected deficit of 13.8% by year end (now looking very optimistic)
· Aging population
· Disproportionally massive public sector
· Wealthy people and private sector business people that wriggle out of paying taxes
· Early retirement with good pensions
· Massive oil, gas, coal, electric and metals import bills
· Economy that is badly affected by the crash in shipping rates in the last two years
· Civil unrest, strikes, riots
· Water shortages and exposure to climate change – warming
· Exposure to Peak Oil through even higher oil import bills and far more expensive airline travel
· Tourist industry that could collapse if civil unrest is widespread or aggressive
· Socialist government that has not been honest with deficit figure – lacks financial credibility
· Socialist government that has overspent, got into power off the back of social spending promises
· In straight-jacket of Euro – unable to set interest rates or print money to devalue currency – part of failing Euro experiment - over last 15 years has become progressively less competitive as innovation, technology, manufacturing and knowledge based sectors have lagged other countries like Germany pegged to the Euro
Riots Need To Stop: If the riots don’t stop – tourism will be hammered. Even if the riots are restricted to Athens only, no-one will want to visit a country in state of civil turmoil. So the socialist government and public sector workers rioting will cause an economic implosion if they continue their behaviours. It’s about time everyone got straight with each other – budget cuts of at least 10% are required - now. Otherwise it’s meltdown.
Investing in Greece: When you look at this list of problems – would you invest in property in Greece at this time? The answer is surely no. The Greeks are lovely people, the country is beautiful and it’s got amazing coastal scenery and maritime prowess – but economically it’s pretty close to a basket case. It’s one of the first casualties of Peak Oil. Yes – we are serious – this is what happens when your oil import bills are too expensive, you use too much oil, the banks won’t lend anymore and the population starts rioting. A key route cause is Peak Oil – but don’t expect the papers or politicians to catch on to this or advertise it. It will take a few more years before everyone wakes up. Peak Oil was July 2008 (for all liquids) and 2005 for crude oil. We hit the peak 2-5 years ago – its history now – we’re on a bumpy plateau with more downside than upside. The world will never produce more than about 86 million barrels a day (we currently produce 85 million barrels a day). Oil prices will rise as oil shortages start to become noticeable by end 2011. The contagion is a sovereign debt contagion with route cause – Peak Oil. Yes, we are very serious. All countries with massive oil import bills that are disproportionately large compared with their GDP will suffer – particularly as oil prices start to sky-rocket again. In a similar situation are Portugal, Spain and Italy – possibly Ireland as well. Too many years of cheap oil has caused massive consumption beyond the means of such nations – with some of the highest numbers of cars per person in the world – all fuelled by imported oil. And imported food. Airline travel bar none. Crazy.
Massive Oil Burden: To put things into context, if oil prices rise to $160 a barrel, Greece will be spending 7% of its GDP on oil alone. This will be enough to bankrupt the country – we believe anything over about $110 a barrel would lead to debt default.
Wait and See: So if you are interested in Greek property, before you take the plunge, first wait until a default, Greece leaves the Euro, then the currency crashes, then growth rates stabilize - only then start looking for a bargain – this could be in two years time, possibly more. But remember by then, oil prices will be higher, airline travel will be more expensive and foreign long distance travel will start to become accessible only to the middle and upper wealth classes again. You might get a bargain or low priced property, you might not lose money – but prices are not likely to rise either from this new low base. But if you buy today, we are 95% sure to "lose your shirt". If you want to make money from Greece, best find as much as you can to short. Sorry to admit this, but try and find a large financial investor or savvy investor who is going long on Greece at the moment – the smart people are shorting and making a run on Greece.
Learning from Greece: We hope this has shed some light onto Greek’s problems. We hope the Special Report also gives you a first indication of the problems that Peak Oil can create as debt levels rapidly escalate, inefficient countries use too much imported oil and the whole lot spirals out of control. Greece needs some urgent energy and oil conservation measures implemented to tackle the route cause – too many cars, not enough productivity! Bloated public sector. Lack of integrity in financial accounting does not help either from a socialist government that has made too many spending promises – the electorate is now angry.
We hope the new government in the UK uses this as a lesson.
Greece Island Village
Athens City Skyline At Dusk