Skip to main content
Part of complete coverage from

What happens to your money during Eurogeddon?

By Frida Ghitis, Special to CNN
August 16, 2012 -- Updated 1817 GMT (0217 HKT)
Europe's crisis affects investors everywhere, Frida Ghitis says.
Europe's crisis affects investors everywhere, Frida Ghitis says.
STORY HIGHLIGHTS
  • Frida Ghitis: Anyone who cares about personal finance needs to pay attention to Europe's crisis
  • Ghitis: Europe's problems could have huge impact on the U.S., just look at the 1930s
  • She says investors are reducing their stake in the stock market in fear of a big crash
  • Ghitis: It's a time of great risk, but also of potentially great reward

Editor's note: Frida Ghitis is a world affairs columnist for The Miami Herald and World Politics Review. A former CNN producer/correspondent, she is the author of "The End of Revolution: A Changing World in the Age of Live Television." Follow her on Twitter: @FridaGColumns

(CNN) -- How much should the rest of the world worry about the crisis unfolding in Europe?

For anyone who cares about the state of their personal finances and the size of their reserves for retirement, the answer is: A lot. For investors, it's a time of risk and opportunity.

Investors exhaled with some relief Sunday after voters in Greece gave a narrow victory to New Democracy, a party that vows to work with European leaders to keep the struggling country in the eurozone. But the crisis is nowhere near solved. Greece has to find a way to stability while Spain and Italy, much more important economies, show worrisome signs.

When scenarios of "Europocalyspe" and "Eurogeddon" are evoked, you know things are getting bad. Because in today's interdependent and hyper-connected world, no continent can feel secure while another is sliding economically.

Frida Ghitis
Frida Ghitis

What happens in Europe has the potential to determine the outcome of the U.S. presidential election in November. It could trip up America's feeble recovery, create more unemployment and take a toll on the global stock market.

Conversely, if Europe manages to avoid a financial storm, it could remove a huge cloud of uncertainty hanging over the global economy and brighten the outlook -- and the portfolios -- of investors everywhere.

Nomura: Near-term relief from Greek vote
UK banks lend funds to eurozone
G-20 to focus on Eurozone, Russia, Syria

Pro-Euro Greek right tries, again, to form government

If you doubt that European problems could affect U.S. shores, take a quick glance at history for a chilling lesson.

Prominent economists have drawn an eerie parallel between today's events and those of the early 1930s when, as the world limped in the aftermath of the 1929 Wall Street crash, a banking crisis in Europe took the world economy into another downward spiral and led to an explosion of extremist politics that, ultimately, set the pathway to World War II.

If you don't care about the politics, consider just the stock market in the last 100 years. The Dow Jones Index, which stood at 381 in early September 1929, lost half of its value in the two months after the Great Crash of October. But the worst was yet to come. By 1932, the index had plummeted a breathtaking 90% from the September highs, dropping to just 41.

The years after the 1929 crash brought a stomach-churning roller-coaster ride. The Dow climbed more than 400% from 41 to 194 and then back down to 92, before stabilizing and resuming a relatively steady climb during World War II.

Imagine seeing your savings, your retirement funds, cut to one-tenth their size.

It took a quarter of a century for the market to return to pre-crash levels. Those who bought stocks when the index stood at 41 saw their investment eventually soar to spectacular heights -- especially those who picked the right stocks at the right time. (The tycoon, J. Paul Getty, among others, started building his fortune by snapping up bargain stocks.)

So what do those events in the 1930s, which unfolded when bankers, politicians and investors knew so much less about the economy, have to do with our world, the age of the Internet, the era of unlimited access to information and advanced economic theories?

If European leaders and the voters who elect them glean the right lessons from history and manage to steer their continent away from the edge of the cliff, then we won't see a repeat of that disaster of a global crash. But no one knows whether Europeans will get their economic problems straightened out.

This means that anyone who owns stocks or other investments should take a deep breath and decide just how much risk he or she is willing to accept. Most Americans own stocks through mutual funds. Millions have their money in employee-provided retirement accounts and rely on the stock market for their future without realizing it.

Many top-rated investors are minimizing their stake in the market. The legendary Jim Rogers says he's pessimistic and not buying stocks. He's buying gold and other commodities. The investment giant BlackRock is telling clients to stock up on cash and safe-haven bonds and treasury bonds even though this is not the best strategy in the long run since it provides negative returns when you factor in inflation.

For the more adventurous and optimistic, there's the lure of potentially huge returns, if Europe dodges disaster, or, in the aftermath of a crash.

European leaders are getting strong advice from all directions. While the Greeks suffer, the Spaniards face severe unemployment, and fringe political parties spring up and grow stronger, economists from both sides of the Atlantic are urging German Chancellor Angela Merkel to reverse course from her push for strict austerity, which is choking economies already in depression.

My sense is that Merkel will do whatever it takes to not let the eurozone come apart and will ease up on austerity while the storm passes. But nobody has a crystal ball; not for the market, not for the politicians.

For investors, the most important point to keep in mind is that these are not days like others. It is a time of crisis, of great risk and, as happens when there is great risk, also of potentially great rewards.

Those who wish to take the risk should do it with eyes wide open, not by accident, neglect or inertia. The epicenter of the crisis may be in Europe, but the shockwaves will know no boundaries. Everyone should pay attention.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Frida Ghitis.

ADVERTISEMENT
Part of complete coverage on
October 21, 2014 -- Updated 2006 GMT (0406 HKT)
Timothy Stanley says Lewinsky is shamelessly playing the victim in her affair with Bill Clinton, humiliating Hillary Clinton again and aiding her critics
October 21, 2014 -- Updated 0102 GMT (0902 HKT)
Imagine being rescued from modern slavery, only to be charged with a crime, writes John Sutter
October 21, 2014 -- Updated 1600 GMT (0000 HKT)
Tidal flooding used to be a relatively rare occurrence along the East Coast. Not anymore, write Melanie Fitzpatrick and Erika Spanger-Siegfried.
October 21, 2014 -- Updated 1135 GMT (1935 HKT)
Carol Costello says activists, writers, politicians have begun discussing their abortions. But will that new approach make a difference on an old battleground?
October 21, 2014 -- Updated 1312 GMT (2112 HKT)
Sigrid Fry-Revere says the National Organ Transplant Act has caused more Americans to die waiting for an organ than died in both World Wars, Korea, Vietnam, Afghanistan and Iraq
October 21, 2014 -- Updated 1851 GMT (0251 HKT)
Crystal Wright says racist remarks like those made by black Republican actress Stacey Dash do nothing to get blacks to join the GOP
October 21, 2014 -- Updated 2207 GMT (0607 HKT)
Mel Robbins says by telling her story, Monica Lewinsky offers a lesson in confronting humiliating mistakes while keeping her head held high
October 20, 2014 -- Updated 1329 GMT (2129 HKT)
Cornell Belcher says the story of the "tea party wave" in 2010 was bogus; it was an election determined by ebbing Democratic turnout
October 20, 2014 -- Updated 2012 GMT (0412 HKT)
Les Abend says pilots want protocols, preparation and checklists for all contingencies; at the moment, controlling a deadly disease is out of their comfort zone
October 20, 2014 -- Updated 0336 GMT (1136 HKT)
David Weinberger says an online controversy that snowballed from a misogynist attack by gamers into a culture war is a preview of the way news is handled in a world of hashtag-fueled scandal
October 20, 2014 -- Updated 1223 GMT (2023 HKT)
Julian Zelizer says Paul Krugman makes some good points in his defense of President Obama but is premature in calling him one of the most successful presidents.
October 20, 2014 -- Updated 0221 GMT (1021 HKT)
Conservatives can't bash and slash government and then suddenly act surprised if government isn't there when we need it, writes Sally Kohn
October 22, 2014 -- Updated 1205 GMT (2005 HKT)
ISIS is looking to take over a good chunk of the Middle East -- if not the entire Muslim world, write Peter Bergen and Emily Schneider.
October 20, 2014 -- Updated 1300 GMT (2100 HKT)
The world's response to Ebola is its own sort of tragedy, writes John Sutter
October 17, 2014 -- Updated 2033 GMT (0433 HKT)
Hidden away in Russian orphanages are thousands of children with disabilities who aren't orphans, whose harmful treatment has long been hidden from public view, writes Andrea Mazzarino
October 18, 2014 -- Updated 1722 GMT (0122 HKT)
When you hear "trick or treat" this year, think "nudge," writes John Bare
October 18, 2014 -- Updated 0442 GMT (1242 HKT)
The more than 200 kidnapped Nigerian schoolgirls have become pawns in a larger drama, writes Richard Joseph.
October 17, 2014 -- Updated 1345 GMT (2145 HKT)
Peggy Drexler said Amal Alamuddin was accused of buying into the patriarchy when she changed her name to Clooney. But that was her choice.
October 16, 2014 -- Updated 2043 GMT (0443 HKT)
Ford Vox says the CDC's Thomas Frieden is a good man with a stellar resume who has shown he lacks the unique talents and vision needed to confront the Ebola crisis
October 18, 2014 -- Updated 0858 GMT (1658 HKT)
How can such a numerically small force as ISIS take control of vast swathes of Syria and Iraq?
October 17, 2014 -- Updated 1342 GMT (2142 HKT)
How big a threat do foreign fighters in Syria and Iraq pose to the West? It's a question that has been much on the mind of policymakers and commentators.
October 17, 2014 -- Updated 1221 GMT (2021 HKT)
More than a quarter-million American women served honorably in the Iraq and Afghanistan wars. Now they are home, we have an obligation to help them transition back to civilian life.
October 16, 2014 -- Updated 2027 GMT (0427 HKT)
Paul Begala says Rick Scott's deeply weird refusal to begin a debate because rival Charlie Crist had a fan under his podium spells disaster for the Florida governor--delighting Crist
October 16, 2014 -- Updated 0407 GMT (1207 HKT)
The longer we wait to engage on Ebola, the more limited our options will become, says Marco Rubio.
October 15, 2014 -- Updated 1153 GMT (1953 HKT)
Democratic candidates who run from President Obama in red states where he is unpopular are making a big mistake, says Donna Brazile
October 16, 2014 -- Updated 0429 GMT (1229 HKT)
At some 7 billion people, the world can sometimes seem like a crowded place. But if the latest estimates are to be believed, then in less than a century it is going to feel even more so -- about 50% more crowded, says Evan Fraser
October 20, 2014 -- Updated 1653 GMT (0053 HKT)
Paul Callan says the Ebola situation is pointing up the need for better leadership
October 15, 2014 -- Updated 2245 GMT (0645 HKT)
Nurses are the unsung heroes of the Ebola outbreak. Yet, there are troubling signs we're failing them, says John Sutter
October 15, 2014 -- Updated 1700 GMT (0100 HKT)
Dean Obeidallah says it's a mistake to give up a business name you've invested energy in, just because of a new terrorist group
October 15, 2014 -- Updated 2301 GMT (0701 HKT)
Fear of Ebola is contagious, writes Mel Robbins; but it's time to put the disease in perspective
October 14, 2014 -- Updated 1744 GMT (0144 HKT)
Oliver Kershaw says that if Big Tobacco is given monopoly of e-cigarette products, public health will suffer.
October 18, 2014 -- Updated 1335 GMT (2135 HKT)
Stop thinking your job will make you happy.
October 15, 2014 -- Updated 0208 GMT (1008 HKT)
Ruben Navarrette says it's time to deal with another scandal involving the Secret Service — one that leads directly into the White House.
October 14, 2014 -- Updated 1125 GMT (1925 HKT)
Americans who choose to fight for militant groups or support them are young and likely to be active in jihadist social media, says Peter Bergen
October 13, 2014 -- Updated 1303 GMT (2103 HKT)
Stephanie Coontz says 11 years ago only one state allowed same sex marriage. Soon, some 60% of Americans will live where gays can marry. How did attitudes change so quickly?
October 14, 2014 -- Updated 2004 GMT (0404 HKT)
Legalizing assisted suicide seems acceptable when focusing on individuals. But such laws would put many at risk of immense harm, writes Marilyn Golden.
October 13, 2014 -- Updated 1307 GMT (2107 HKT)
Julian Zelizer says the issues are huge, but both parties are wrestling with problems that alienate voters
October 13, 2014 -- Updated 2250 GMT (0650 HKT)
Mel Robbins says the town's school chief was right to cancel the season, but that's just the beginning of what needs to be done
October 11, 2014 -- Updated 1543 GMT (2343 HKT)
He didn't discover that the world was round, David Perry writes. So what did he do?
ADVERTISEMENT