Wall Street is reacting in a manner well known to the observers: "Run away, run far, far away." The panic isn't all that.
The Greek economy is 80 percent service industry. The remainder of the Greek economy is shipping. Shipping has never been a bad investment and it still isn't today. The reality of the Chinese export economy is all too real and it requires considerable shipping lines to bring their products to the rest of the world. There is still oil exports through the world and shipping is a part of that. So shipping out of Greece is exceptionally stable.
The uncertainty is about the currency.
The service industry requires employment of many Greece citizens. The key to the majority of this service economy is tourism. With a completely horrible reputation at this point due to bad press regarding it's currency, the service economy is not as vibrant as possible.
July 6, 2015
The Greek economy is 80 percent service industry. The remainder of the Greek economy is shipping. Shipping has never been a bad investment and it still isn't today. The reality of the Chinese export economy is all too real and it requires considerable shipping lines to bring their products to the rest of the world. There is still oil exports through the world and shipping is a part of that. So shipping out of Greece is exceptionally stable.
The uncertainty is about the currency.
The service industry requires employment of many Greece citizens. The key to the majority of this service economy is tourism. With a completely horrible reputation at this point due to bad press regarding it's currency, the service economy is not as vibrant as possible.
July 6, 2015
(CNN)
Greece's rejection (click here) of Europe's latest bailout offer has raised uncertainty for
millions of vacationers planning to head there for their summer break.
With
a "Grexit" from the eurozone an ever increasing prospect, banks
remaining shuttered and concerns over shortages of basic goods, many
will be questioning whether or not to cancel their trip.
The situation remains in flux, with few definitive answers.
But here's what we know at the moment:
Should I go?
On
the downside, it's likely that a vacation in Greece will involve added
inconvenience, particularly when it comes to financial transactions....
The problem of currency exchange can be an issue with banks closed. Let's say Greece retakes it's former currency called the drachma.
The exchange rate is One (1) Euro = 340.75 Greece drachma. That is advantageous exchange rate for those that transact Euros. Tourism should not be a problem. Greece will continue to accept Euros in transactions with hotels and vendors, but, the change one will receive will be from the Greek monetary system. That won't be a problem until a tourist returns home to exchange monies back to Euros or the USA dollar.
If the drachma drops in value after it is reemployed as Greece's currency the current currency will be result in less on conversion.
Let's say a tourist takes a trip and returns home with 1000 drachma. The conversion today would be about 3 Euros or 3.23 US dollar. That is a break even point and a negligible conversion. If the Greece's drachma falls in number to 681.5 per 1 Euro, then the consumer lost money and will only receive about 1.5 Euro or 1.60 US dollar. Here again it is more an aggravation than a penalty to a trip to Greece and it's magnificent tourism content.
Where this gets tricky is when business has large amounts of Greece drachma. Business will own drachmas by the thousands but more the hundreds of thousands or millions. It can cause losses to businesses that have commerce outside Greece. While in Greece the citizens and local economies will have greater stability than companies that import their products or have foreign interest in their holdings such as multi-national hotel chains. The international company then has to absorb their losses due to a drop in the Greece drachma.
The Euro doesn't have this problem and is more valuable than the USA dollar.
Should Greece return to the drachma, the economy will continue to operate without severe impacts. The domestic economy will continue and quite frankly will grow with any multi-national company shuttering their doors.
When the drachma begins to return to a better status with the growth of local and domestic economy the environment will be attractive once again to international interests. At this point, Greece may not really care about Wall Street. Any products imported to Greece will be too expensive to purchase, so Greece will concentrate on local economies and domestic products. Greece probably won't take their goods to international export markets because it will suffer losses on currency conversion that it cannot afford.
Shipping can remain successful even though international in nature. The shipping is operating out of Greece, but, delivering to foreign markets. The Greece shipping companies can choose to operate on currencies that work for them and their customers. I would expect shipping to stabilize itself simply because it won't convert to the Greece drachma, except to pay taxes to the Greece government. The higher the exchange rate of the drachma to the Euro the easier it will be to pay their taxes. So, it is a winning strategy for the international shippers, too.
As a matter of fact, the cost of shipping can see a fluctuation to higher rates in drachmas, but, that does not change the cost of the actual shipping in foreign currency. Let's say a shipping company takes in 1 million drachma from shipping a package. The conversion cost to the client is 2934.70 Euros. That cost will not change to the customer, what will change is the number of drachma the shipping company receives in conversion. The shipping companies will have to set shipping charges on a chronic rolling conversion as the drachma gains and losses value if that is it's primary currency.
The baseline to the Greece drachma is based in the economy and national assets of Greece. That will be up to the Greece government to make changes needed to revitalize their economy.
Currency a funny thing. If one looks across the USA there are cities and towns that even transact their own currencies. The currencies could be a one to one exchange with the US Dollar. The cities have a store front that converts their currency back to US currency. But, the transaction of all the economy in that city or town is based in their own currency.
Why do it? Several reasons. Ideology. Protest. But, the most interesting reason is that the local currency could actually find itself in an interesting place. If it has greater asset value than the US Dollar that can be reflected in the exchange rate. What happens to a local currency if the US government defaults on it's debt? As the US dollar starts to fall, the local currency can still hold its higher value if it's asset value in the town remains unchanged regardless of what the rest of the country is doing.
Now that local value will not translate internationally or nationally in the USA. As far as the markets outside the local economy is concerned, that currency is worthless simply because it is not recognized as legal tender. But, let's say the US Dollar falls and the local economy holds on to it's value. The local economy's sale of goods and services within it's own borders can remain static if all those in the town are valuing the currency in the same way.
Crazy stuff, huh?
But, I am not really worried about the Greece drachma. Greece can convert to their own currency, but, it will require scrutiny on the value and legislate to grow or even regrow the country's domestic economy.
The clear definition to Greece's success is to realize borders mean something and can aid the country if it feels as though there is no other choice. My concern is severing of ties to the European Union. The EU is an asset to Greece and it needs to appreciate that. Allies can be hard to find when times get tough.
The way I see Russia's interest is more about poking Europe in the eye over Ukraine than an actual benefit to Greece. The ruble is not doing well either as an international currency and unemployment is up in Russia. So, it may be Greece and Russia may have the same dynamics in their currency, however, I see the drachma recovering over time. I can't say that about Russia. If an international relationship is built on currency the relationship will change over time as one currency grows stronger and the other suffers for the growth. If the Greece drachma becomes more valuable than Russian rubles it would cause more damage to Russia. I don't see this as a productive relationship so much as a dangerous one.
Should Greece return to the drachma, the economy will continue to operate without severe impacts. The domestic economy will continue and quite frankly will grow with any multi-national company shuttering their doors.
When the drachma begins to return to a better status with the growth of local and domestic economy the environment will be attractive once again to international interests. At this point, Greece may not really care about Wall Street. Any products imported to Greece will be too expensive to purchase, so Greece will concentrate on local economies and domestic products. Greece probably won't take their goods to international export markets because it will suffer losses on currency conversion that it cannot afford.
Shipping can remain successful even though international in nature. The shipping is operating out of Greece, but, delivering to foreign markets. The Greece shipping companies can choose to operate on currencies that work for them and their customers. I would expect shipping to stabilize itself simply because it won't convert to the Greece drachma, except to pay taxes to the Greece government. The higher the exchange rate of the drachma to the Euro the easier it will be to pay their taxes. So, it is a winning strategy for the international shippers, too.
As a matter of fact, the cost of shipping can see a fluctuation to higher rates in drachmas, but, that does not change the cost of the actual shipping in foreign currency. Let's say a shipping company takes in 1 million drachma from shipping a package. The conversion cost to the client is 2934.70 Euros. That cost will not change to the customer, what will change is the number of drachma the shipping company receives in conversion. The shipping companies will have to set shipping charges on a chronic rolling conversion as the drachma gains and losses value if that is it's primary currency.
The baseline to the Greece drachma is based in the economy and national assets of Greece. That will be up to the Greece government to make changes needed to revitalize their economy.
Currency a funny thing. If one looks across the USA there are cities and towns that even transact their own currencies. The currencies could be a one to one exchange with the US Dollar. The cities have a store front that converts their currency back to US currency. But, the transaction of all the economy in that city or town is based in their own currency.
Why do it? Several reasons. Ideology. Protest. But, the most interesting reason is that the local currency could actually find itself in an interesting place. If it has greater asset value than the US Dollar that can be reflected in the exchange rate. What happens to a local currency if the US government defaults on it's debt? As the US dollar starts to fall, the local currency can still hold its higher value if it's asset value in the town remains unchanged regardless of what the rest of the country is doing.
Now that local value will not translate internationally or nationally in the USA. As far as the markets outside the local economy is concerned, that currency is worthless simply because it is not recognized as legal tender. But, let's say the US Dollar falls and the local economy holds on to it's value. The local economy's sale of goods and services within it's own borders can remain static if all those in the town are valuing the currency in the same way.
Crazy stuff, huh?
But, I am not really worried about the Greece drachma. Greece can convert to their own currency, but, it will require scrutiny on the value and legislate to grow or even regrow the country's domestic economy.
The clear definition to Greece's success is to realize borders mean something and can aid the country if it feels as though there is no other choice. My concern is severing of ties to the European Union. The EU is an asset to Greece and it needs to appreciate that. Allies can be hard to find when times get tough.
The way I see Russia's interest is more about poking Europe in the eye over Ukraine than an actual benefit to Greece. The ruble is not doing well either as an international currency and unemployment is up in Russia. So, it may be Greece and Russia may have the same dynamics in their currency, however, I see the drachma recovering over time. I can't say that about Russia. If an international relationship is built on currency the relationship will change over time as one currency grows stronger and the other suffers for the growth. If the Greece drachma becomes more valuable than Russian rubles it would cause more damage to Russia. I don't see this as a productive relationship so much as a dangerous one.
