'O wretched countrymen! what fury reigns?
What more than madness has possess'd your brains?
Think you the Grecians from your coasts are gone?

The United Sates just celebrated another birthday - her 239th. While we celebrate the day the Declaration of Independence was ratified there are several other dates that could conceivably be used to mark the true "start" of America.   The Declaration of Independence is a tremendous document - but it doesn't tell you who's going to deliver the mail or how voting will actually take place. The Articles of Confederation, which were written up in November of 1777, tried to answer those questions. This first attempt at a constitution proved inadequate. In the defense of the Founding Father's they had very little time to actually discuss the Articles in person as they were constantly running into the countryside to avoid the British army. So we tried again, and this time wrote and ratified The Constitution eleven years later. However you mark the true beginnings of the United States, it was clear that we were a unified political entity by at the latest 1788. Interestingly while we were a united Polity we still did not have a united currency. Congress under the new Constitution authorized the Treasury to print coins starting in 1792 - a full 16 years after the Declaration of Independence. Even more interesting both the Mexican Peso and Spanish Dollar remained legal U.S. currency until 1857 - so for a full third of U.S. History we had a unified government but not a unified currency.

I bring up this history lesson to discuss another one; the lesson we started learning back on February 17th of 2010 when I wrote my first newsletter article about the problems with Greece in the Eurozone. At the time Greece was just one of a handful of other nations collectively called PIIGS (Portugal, Italy, Ireland, Greece and Spain) that were basically going bankrupt after the financial crisis of 2008-2009 and the efforts by the other Eurozone members to try and reconcile with these problems. With the exception of Ireland, the other four countries are still having fairly significant economic problems of varying degrees - but none as much as Greece. As of this writing Greece owes payments back to the ECB (European Central Bank) and the IMF (International Monetary Fund) that it has no way of paying back. On top of that, there were governmental reforms that Greece was supposed to undertake in return for these loans - some they have done, some they did and then reversed and others that they refuse to do. This crisis in and of itself is not that terribly important from a worldwide economic perspective. It stinks if you are a Greek citizen, but whether or not Greece stays in the Eurozone and uses the Euro as its currency shouldn't matter much economically - but it does because of what it means politically.

The good news about Greek debt is that the ECB has held a Greek default at bay long enough that the bonds themselves have been taken out of European banks and assumed by the wider ECB and IMF. What this means is if the bonds themselves become worthless you won't see a cascade of European banks suddenly find their guaranteed reserves diminished. (As EU backed bonds they were originally considered fully guaranteed and thus could be held as reserves just as U.S. banks hold U.S. bonds.) In that situation, the banks wouldn't have enough assets to cover their loans so they would have to sell non-guaranteed assets and create cash, when lots of banks are  doing that at the same time, the market prices of the things they are selling get driven down - so they have to sell even more shares to raise the same amount of cash. This is essentially what happened during the financial crisis after the Lehman Brother's failure on September 15, 2008. What has happened instead is over the last five years those Greek bonds have been purchased out of the banks and bought by entities created by the IMF and ECB. So if those bonds become worthless it means those international bodies are out a lot of money - but it doesn't lead to the cascade of failures that we were all worried about in 2010 and 2011.

Now for the bad news; while the rolling agreements and delays in dealing with Greece's debt allowed time to isolate that debt from harming the world economy it also stretched out the economic pain in Greece. People can deal with lower wages, unemployment and lack of opportunity for a while but they have to see some light at the end of the tunnel. In Greece the economic troubles just keep on going, the educated young people who might otherwise help spark an economic resurgence in the country have left, and it feels like all these problems are being thrust upon Greece by Germany and other Northern European countries that the Greek people didn't vote for and have no control over. In reaction Greece elected a very Leftist, Nationalist political party to run the country - Syriza led by current Prime Minister Alexis Tsipras. One of the first things Tsipras did upon taking office is rehire 12,000 government workers that were laid off as part of the austerity measures demanded by the ECB in exchange for these emergency loans. This is the fundamental problem when a political unit and a monetary unit are separate. The people of Greece can elect who they want; they can spend what they want and tax what they want. (Of course if they collected those taxes a little more efficiently they wouldn't be in so much trouble.) That doesn't mean they won't suffer the consequences of perhaps being kicked out - or voluntarily leaving - the Euro or even the EU and seeing all their banks fail and losing all ability to borrow money on the international markets - but at least it would be their decision not Germany's decision. Once again if isolated in Greece this is still not a huge problem but in response to the seeming German dominance of the ECB, nationalist parties have risen up all over Europe, some right-wing and some left-wing, but all preaching the same tune regarding the Euro - that their country should get out and reclaim ownership of their own currencies.

On the right side of Nationalism, the National Front Party in France headed by Marine Le Pen and often just called the Le Pen party, is just such a worry. Greece has a population of about 10 million and a GDP of just under 300 Billion Euros. France has a population of about 70 million and a GDP of more than 2.5 Trillion Euros. Spain, Italy and Portugal three of the other original PIIGS are dealing with similar internal struggles regarding the benefits and costs of staying part of the Euro experiment. The five-star movement in Italy was formed as an anti-Euro political party and has gained more and more support.  The desire to stay together is still strong, and just like this Greek crisis that first stirred more than five years ago, the path back to the Franc, Lira, and Peso might take another decade or more to be fully realized. The fact remains however, that you need to have a single political system to make a single currency work. I think many of the architects of the Euro knew that and they were trying to put the cart before the horse, hoping a united currency would lead to a more and more united polity. For a decade slightly left of center or right of center political parties came to power in the major European countries (left and right in European terms) and major international organizations like the ECB became trusted bodies. But like with many things in life once the smooth sailing was over and difficulties arouse, true colors began to show.

Like it did on June 30th -the Greek mess might cause short-term selloffs in the markets and that might trigger the long overdue correction. In the longer term economic problems in Europe lower international competition for the United States. The dollar should also continue to get stronger against the Euro - which is great for me personally since my wife and I are traveling to Europe next spring. My hope is that when we go the Euro is about at par or lower than the dollar - but we only have to change our money into Euros and not Pesos, Francs and Lira. For a history and political geek like me, the Greek drama is fantastic to watch unfold. But the economic impact of Puerto Rico's bonds (still not a huge worry) could be bigger than the situation in Greece for us here in the United States.