Greece – Of Banks And Tanks

The great thing about reality (at least for a writer) is that it has this way of going in directions so strange that not even fiction writers would dare attempt. If recent news out of Greece is to be believed, the Greek government has pulled a whopper - ordering some heavy-duty military hardware at a time when its largest European creditors are debating just how far they should push their own citizens to float this bankrupt nation. (For more on Greece, read 5 Reasons You Should Care About Greece.)

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Tanks, with a Side of Skepticism
Word broke yesterday morning that the Greek and U.S. governments have apparently reached agreement on a deal that will "grant" up to 400 Abrams tanks to Greece, along with a host of refurbishments and upgrades. Investors should realize that the sourcing on this is hardly airtight - the sources include Svenska Dagbladet and other less-than-regular outfits like Defencegreece.com and Hellenic Defence & Technology. Accordingly, this could be a hoax or old news made to seem new again, and it is worth noting that there aren't any corresponding entries in the Federal Register yet.

Still, for the sake of argument, let us assume this is true. Let us assume that a country that is teetering on the brink of default (and would be in default if not for the efforts of France, Germany and other self-interested parties) has decided to make a splashy defense deal.

For starters, this may not represent as big of a transaction as the headlines suggest. What sources there are for this seem to suggest that this may actually be a deal for used equipment; instead of paying the more-than-$5 million per unit to General Dynamics (NYSE:GD) that these tanks cost when new, Greece may be getting them for far less. The United States has been known to sell used equipment very cheaply (or give it away entirely) in exchange for upgrade and retrofit deals - deals that happen to keep defense contractors like GD and Northrop Grumman (NYSE:NOC) busy during periods of less new build activity. (To learn more about austerity measures, check out Austerity: When The Government Tightens Its Belt.)

Likely to Go Over Like a Lead Balloon
Even if the deal is not a premium-priced contract for shiny new tanks, there's a good chance of real fallout if this report proves to be true. It cannot be very likely that French or German citizens will be pleased to see Greece buying military hardware when their own governments are putting their tax dollars to work to bail out a country now widely seen as lying their way into the Eurozone, gorging on debt-fueled public largesse, and now complaining about austerity packages.

What's more, it's hard to argue the pressing need for the deal - Greece doesn't live in the best neighborhood, but it's nearly impossible to imagine a credible military threat to a NATO member. Then again, if this deal is real maybe it is an acknowledgment that the Greek government expects (or fears) significant civil unrest over ongoing austerity programs and the dismal state of the Greek economy.

Priorities?
If there is anybody out there still harboring hope for Greece, this has to be sobering and disappointing. True, National Bank of Greece (NYSE:NBG) is not going to recover or fail with this deal - though the stock is a useful proxy for investors interested in Greece. Likewise, Deutsche Bank (NYSE:DB), ING (NYSE:ING), Dexia and BNP Paribas are not going to see fears of their exposure to Greece eased by this sort of announcement.

The reality is that Greece is in serious trouble and looking at several years of dismal economic conditions. Even if the leading nations of the Eurozone can float Greece through the crisis without a default, companies like Coca-Cola Hellenic (NYSE:CCH), Elector and Elektroniki are going to be in for tough times as lower government spending and a poor economy weigh on Greek citizens (though lottery company OPAP may see more interest from stretched-out and stressed-out Greeks hoping for a little luck). Accordingly, Greece's own citizens may seriously question the wisdom of this deal and the optics of their government telling them to tighten their belts while they go out to buy military hardware.

The Bottom Line
Clearly the Greek crisis is nowhere near completion; fears are in fact rising that a major bank like Dexia could be in serious trouble and there are even worries about U.S.-based financial companies like Morgan Stanley (NYSE:MS). But even amidst the near-constant worry and the steady stream of bad news, there is room for the absurd - and this supposed military deal between the U.S. and Greece is indeed absurd even if it happens to be true. (To better your understanding of debt, read A Look At Government Bonds And National Debt.)

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