Greek Butterfly

Initial conditions are an important determinant of outcomes.  In meteorology, something as innocuous as the air current caused by a butterfly’s wing in one region of the world is theorized to have some possible influence on future weather patterns elsewhere on the globe.  Based on some work done by the mathematician and meteorologist Edward Lorenz at the Massachusetts Institute of Technology, this influence was dubbed the Butterfly Effect.

Greece finds itself in a unique condition, and it is likely to have some impact on the global markets no matter how its situation is resolved.  The gorgeous isle nation has mismanaged it fiscal affairs, albeit with aid from multinational financial firms headquartered in New York, and is once again trying to find a way to avoid the likely serious repercussions of any resolution.  In 2012, markets were thrust into turmoil when the threat of a Greek default was making daily headlines.  Since then, global institutions have tweaked their balance sheets in preparation for this drama’s conclusion.  Are the actors now ready for the final act?

Greece’s elected officials are leaning hard against the demands of the European Union (EU) and the International Monetary Fund (IMF).  The anti-austerity Syriza party was elected in January 2015 in part because of its platform against more government spending cuts, the very things the IMF and EU are asking for.  Several paths may yet lead them out of this imbroglio but two possible conclusions still end in a large default. One would require that Greece leaves the euro currency altogether (aka Grexit); another resolution may let them remain in the currency union while still not paying in accord with the original terms of their loans.  Either way, there has to be some global impact, despite the preparations by large multi-national financial firms.  Perhaps our dollar strengthens further.  What would that do for our trade balance?  Or what if a large firm has not adequately prepared for the tornado created by a butterfly in Greece?  Could a storm emerging from their Chaos turn into the next illiquidity event?  Whether you like theatre or not, you have a ticket to the show.  (by C. Cox)