Can Greece leave the euro and the rest of the world keeps moving along? Turmoil in Greece and a call by the leftist Syriza Alexis Tsipras to reverse what he calls ‘barbarous austerity” has put the future of the entire Eurozone in doubt. While it is unlikely that Mr. Tsipras will be able to form the necessary coalition to gain power, the uncertainty about Greece’s future plans could hurt the euro. Pressure brought on by voters in Greece to try to roll back plans to cut the budget and pay its bills could destroy the European Central Bank plan to avoid a total default. Now the question is whether a Greek exit would be catastrophic or if it is destined to happen regardless.
The fear of a Greek exit has not been just about Greece but fear of contagion. If Greece exits the Eurozone, what will happen to other weak members of the zone. If Greece is allowed to just default and walk away after taking others’ cash that they lent to Greece in good faith, others will have a precedent for an exit strategy. The question of moral hazard now comes into play. If Greece can take the EU money and then walk away, why then would another EU country move to help another EU member?
Of course this raises the larger question of the problem with the left. It seems that they feel that they are somehow entitled to other people’s money. Forget the fact that Greece lied to the EU about the true state of their fiscal reforms and how their socialist leaning government has destroyed the incentive to work and create as the system of entitlement looks, to suck the lifeblood out of successful enterprise not encourage this. This has left the Greek people unable to compete with their neighbors.
Yet the allure of socialism is becoming more attractive in tough times especially to the uniformed and lazy. In France the call by President Elect Hollander to tax the rich at a rate of 75% shows the desperation to try to fund an unsustainable fiscal vision that is doomed to collapse.
These concerns have killed the euro and tanked oil as well. Of course the fact that supply of oil is overflowing had some impact as well. Yesterday the API added to the bearish sentiment by reporting a stunning increase in supply. A huge increase in Gulf supply led to a reported 7.8 million barrel increase in crude supply. The API also reported a big drop in gasoline supply coming it at a drop of 5 million barrels and a drop in distillates of 2.7 million barrels.
The Energy Information Administration (EIA) in their Short Term Energy Outlook did give the beleaguered crude market a bit of a bounce when they increased demand expectations a bit for the rest of this year by about 70,000 barrels per day. Next year they predict that demand will be 140,000 barrels a day less than their last forecast, of course there is plenty of time to adjust that later.
The good news is that the gasoline bubble has finally burst. The EIA said that with falling global crude oil prices over the past month, EIA has lowered the average regular gasoline retail price forecast for the current April-through-September summer driving season to $3.79 per gallon, 16 cents per gallon below the level in the previous Outlook. EIA expects regular gasoline retail prices to average $3.71 per gallon in 2012 and $3.67 per gallon in 2013, compared with $3.53 per gallon in 2011.