Winston Churchill once said that Americans can always be counted on to do the right thing – after they’ve tried everything else. Oh, Winnie, you were so full of pith.
In light of the Greek crisis, let me propose what I’ll call the Churchill Corollary: Europeans can be counted on to discuss everything to death, and then do something really stupid. Consider the Balkans in 1914, Czechoslovakia in 1938, and Greece in 2015.
It’s not that the Greek financial crisis will lead to World War III, it’s just that a lot of high-minded, but idiotic, thinking (covered up by insufferable European haughtiness) caused this mess, and it will lead to pain and economic damage around the world.
The Euro: Problem, Not Solution
As the stubborn Germans and bull-headed Greeks argue over bailouts and further austerity, let’s remember the bone-headed idea at the core of the problem: the euro. The euro isn’t, can’t, and won’t ever be able to be the European cognate of the dollar because there is no central European government, or powerful central bank, that can control the monetary policy of every euro-using country. The euro has, and will continue, to cause huge economic dislocations because it papers over real economic differences among the sovereign nations using the currency and doesn’t allow individual countries to adjust their currencies to their true value.
In the past, if the Greek economy was in the dumps and the country was consuming more than it was producing, one way it could bridge the gap – in addition to or instead of borrowing, which it did under the euro – was to devalue its currency. Sure, making the drachma cheaper would hurt individual Greeks by making imports more expensive, but it would make the Greek economy more competitive. Instead of vacationing in Turkey, for instance, Danish tourists would flock to similar – but much cheaper – resorts in Greece. But when a country is bound to the euro, it can’t devalue.
So as long as it remains in the eurozone, and absent more bailouts and lending from Germany and other countries that keep running trade surpluses, Greece will find itself in a hole from which escape will be increasingly difficult.
Freeze and Panic
After Prime Minister Alexis Tsipras shut Greece’s banks and its stock market over the weekend, it was natural for markets around the world to sell off. This who-knows-how-this-will-resolve-itself crisis is like all others in that a sudden spark sets off a storm during which investors run for the hills. On Monday, yields on 10-year Treasuries fell by more than 5%, reflecting demand for investments that are perceived as ultra-safe.
Dividend-paying stocks aren’t Treasuries, of course, so there was no stampede into those stocks in the aftermath of the Greek news. In fact, many of the most popular dividend payers lost value, in line with the rest of the market. But as what typically happens after investors catch their breath and have a clearer picture of what might happen, it’s likely that dividend stocks will bounce back. Sure, any hit to European economies as a result of a “Grexit” from the euro is likely to affect the earnings of established American dividend payers. But most traditional dividend-payers are stable companies that have survived, prospered and paid dividends through recessions, economic crises and assorted panics.
The Bottom Line
If you keep thinking long-term, don’t get caught up in the frenzy of the Greek crisis and stick with dreadnought dividend payers, you’re going to be OK.
Evan Cooper, is an award-winning financial journalist. After reporting on business at The Miami Herald, Evan worked on Wall Street at the New York Stock Exchange, the Securities Industry Association and Drexel Burnham Lambert. He was Editor-in-Chief of On Wall Street, a publication for financial advisors, research editor of Institutional Investor, and Deputy Editor of InvestmentNews, where he was honored by the Society of American Business Editors and Writers with a “Best in Business” award for his online opinion column.