David Kotok is the co-founder, chairman and chief investment officer of Cumberland Advisors, a New Jersey-based money management firm. His thoughts on the financial markets have appeared in various media outlets, including CNBC, the Wall Street Journal and the New York Times. Kotok also currently serves as the director and program chairman of the Global Interdependence Center, a Pennsylvania-based global trade and monetary policy think tank.

On the heels of our interview with Dennis Gartman, IU Associate Editor Lara Crigger sat down with Kotok to discuss the fate of the euro, including how the euro will survive, why Spain doesn't need a bailout and why more bad times are ahead for the U.S.

Crigger: The situation over in Greece looks pretty bleak at the moment. Is the euro doomed?

Kotok: No. The euro is a new currency. It was only officially agreed upon in 1991, and was launched as a virtual currency on Jan. 1, 1999, with 11 countries. Greece was not one of them.

Greece came in later. It has been subsequently revealed that the data Greece used to qualify and obtain entry into the eurozone was flawed. The polite way is to say it had errors. An impolite way is to say that it was miscomputed as an act of deviousness.

Crigger: Are you saying that Greece miscalculated its data on purpose, so it could get into the eurozone?

Kotok: I don't know. I wasn't there. But there are many people who believe it was purposefully misstated. And we have evidence now, from the use of currency swaps, that the data was certainly massaged to obtain qualification. Subsequently, it was revealed to be inaccurate.

But if Greece were to default, or to withdraw from the eurozone or the European Union tomorrow, the biggest damage would be done to Greece: the Greek economy, Greek citizens, Greek businesses and banks. Others might suffer small losses, but Greece would render itself economically to a status that might be rivaled by a poor country like Albania. The Greeks know it, which is why Greece has yet to threaten departure from the eurozone or the EU.

Crigger: But it doesn't look like France or Germany, the two biggest members of the eurozone, have any intention of bailing Greece out.

Kotok: They don't; not until Greece imposes an austerity budget and alters its present, sovereign fiscal policy. So what you have now is a dance with saber-rattling.

Something to keep in mind is that 51 percent of the Greek budget is wages and benefits for public sector workers. The public sector workers do not want to give up this free lunch. But they only have one political tool: They can go out, strike and demonstrate. And they're doing that. We should expect it, really, because that's the form that negotiations take in European social-democratic countries. This is a classic negotiating structure in Europe, where the unions demonstrate on the street.

Crigger: So you think the European Union and the euro can recover from their present troubles?

Kotok: Right. I don't think this dooms the EU, and I don't think it dooms the euro. I expect the European Union to stand the ground defined in the Lisbon Treaty, which means Greece will not be able to vote or participate in EU matters.

After all, this needs to be put in context. Greece is only about 3 percent of the eurozone economy. It's a very small portion of the capitalization of the European central banks, and any assistance package would be prorated by capitalization in the European central banks.

The euro and the European Union now confront their first grand crisis. In my view, they will resolve the crisis. There will be controversy and hullabaloo for several months, and more labor demonstrations and negotiations. But eventually, there will be resolutions. The sovereign debt will roll and refinance. It usually does, when there is the capacity to service the debt and pay it. That is true in Greece, and in Portugal and Spain and everywhere else.

Previous Page

1  |  2  |  3

Next Page