What the Heck's Going On in Greece?

If you have the unfortunate habit of checking your portfolio on an hourly basis, today has certainly been painful. So what gives with today's sudden market downturn?

It all started when Greece Prime Minister George Papandreou decided that instead of simply letting his government decide whether to accept the terms of the most recent bailout, he was going to put the entire measure up for a referendum to be voted on by Greek citizens.

Greece 101
It seems like we've been hearing about Greece for a long time, right? Well, here's a very (very) simplistic timeline that's led us to this point.

  • January 2001: Greece is admitted into the European Union.

  • November 2004: The truth comes out! One of the requirements for joining the EU is that a country's deficit cannot exceed 3% of its GDP. The government admits that for five years, it has not met this mandate.

  • December 2009: Papandreou announces the first of many austerity measures, cutting back on workers' pay and bonuses while raising taxes.

  • April 2010: EU finance ministers agree to a bailout package of 30 billion euros.

  • May 2010: After realizing that 30 billion euros might not be enough, the triumvirate of the EU, the European Commission, and the IMF agree to a bailout package of 110 billion euros.

  • July 2011: The EU approves another bailout, this time for 109 billion euros.

  • October 2011: Banks agree to write down 50% of their loans to Greece, and Greece is due another 100 billion euros in early 2012.

The decade -- and especially the last two years -- has wreaked absolute havoc on companies inside the country. Consider how some of Greece's largest publicly traded companies have fared since the start of 2009 -- a period of time in which the S&P 500 is up roughly 40%.


What It Does

Drop Since January 2009

National Bank of Greece (NYS: NBG)



Paragon Shipping (NYS: PRGN)

Dry bulk shipping


Dryships (NAS: DRYS)

Primarily dry bulk shipping


OceanFreight (NAS: OCNF)

Dry bulk shipping


Aegean Marine Petroleum (NYS: ANW)



Diana Shipping (NYS: DSX)

Dry bulk shipping


Source: Google Finance.

That means a typical investment in these Greek companies is losing to the U.S. market by an astounding 100% or more (except in the case of Diana Shipping).

The scene inside the country
All along the way, there has been tremendous pressure on politicians, as the austerity measures enacted by international lenders have been wildly unpopular. Many protestors inside the country believe anything -- including Greece defaulting on its debt -- is better than the austerity measures they are facing.

Just last week, it looked as though eurozone leaders had finally cut a deal that would stop the bleeding. But in a bold move, Papandreou may very well give protestors what they want. The prime minister has flatly stated that the decision on whether or not to accept more bailout money -- and the further austerity measures that will accompany it -- should be put to a vote by his country's people.

It's impossible to tell whether the issue will ever even get to a vote, but one thing is for sure: Most investors don't like the move.

Why should we care?
It's not as if this is the first country to default on its debts. Here are some notable defaults from the past.


Year(s) of Default


Three times before 1600


Eight times before 1788


1929, 1939


Five times since 1960





Source: Globalpost.com.

Most recently, the world didn't end when Russia and Argentina defaulted. And though I was 10 years younger when they occurred, I don't remember my life being affected much. So why is everyone up in arms?

The Washington Post recently tried to spell out the worst-case scenario for a Greek default. It goes something like this:

  1. Investors will lose faith in Greek banks, leading to a run on the banks and a fall of the government.

  2. Those with money invested in fellow euro-backed countries experiencing trouble (Portugal, Spain, Ireland, and Italy) will transfer their savings to safer havens, creating a massive shift of money away from countries that need it the most.

  3. Leaders of stronger euro countries will leave the EU, leaving smaller nations to fend for themselves.

  4. Stock markets the world over will plunge. With depressed demand from European countries, the global economy enters a two-year recession.

Time to stock up on canned goods?
Will it happen that way? There's absolutely no way to know. And if fellow Fool Morgan Housel is right, things will likely turn out in a way that few are able to predict until the moment actually arrives. In the meantime, all we can do is wait.

If you just want a safe place to put your money, I suggest you check out The Motley Fool's special free report "Secure Your Future With 11 Rock-Solid Dividend Stocks." The report is yours today, absolutely free!

At the time thisarticle was published Fool contributorBrian Stoffelknows he glossed over much of the nuance involved in the situation, and only offers this as a view from 50,000 feet up. He does not own any shares of companies mentioned. You can follow him on Twitter at @TMFStoffel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy..

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.