The Escape Fire By: Gabriel PotterMBA, AIFA® 2015.06.29

Wilderness firefighters have an interesting survival technique to gain safety from an approaching blaze.  If a firefighter is surrounded by burning grass and trees in every direction, with no safe place to run, they can start a small fire to the brush directly in front of them.  This small blaze will consume all of the flammable material near them, creating a small oasis - an escape fire- while the bigger, uncontrolled wildfire ultimately passes them by.  The idea of using controlled burns to establish fire lines and safe zones – where the contagion of wildfire will not spread – is a key technique for controlling and containing fire in forests and grasslands all over the world.

 

I started thinking about this technique quite frequently as I watched Greece’s financial failure accelerate this weekend with bank closures, capital controls, limited currency, and skyrocketing interest rates.  Apparently, Greek Prime Minister Tsipras declined to inform his creditors that he was going to ignore their previously negotiated positions and instead offer their proposals as a voting referendum to the Greek public in a week, all the while passionately encouraging the Greek people to vote “No” on the Troika’s (the IMF, ECB, and EC) proposal.  Framing the debate for greater austerity as a vote to the people is an intellectually dishonest fallback position for the embattled Prime Minister.  He’s been so sure of his mandate from the Greeks that he really doesn’t need to reestablish it so soon, a mere six months into office.  The ECB is trying to communicate that a “no” vote means an exit for the Euro; the fact that the ECB must make this observation explicit is proof that a significant number of Greek public doesn’t understand the ramifications of the referendum.

 

Moreover, the timing of the resolution was placed in such a way as to virtually guarantee a default.  I’m sure his hope was for the Troika to give Greece another loan extension, but he miscalculated.  The creditors are no longer threatened by a wildfire in Greece spreading to other at-risk countries.  The European Union may not last forever, but Greece will not start the fire that ends the Euro.  The fire lines are up, and Greece has struck a blaze that will only burn itself.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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