Tag Archives: Greek Debt Crisis

Greece and a Change to the Eurozone?

24 May
So with the Greek election (take 2) looming only weeks away, the questions is – will Greece remain in the Eurozone? Personally, I believe if they left it would be both political and financial suicide but that is just an opinion. For the Eurozone such an option is unthinkable and hugely damaging – let alone the fear of the domino effect (so who would be next) and I guess that would/could lead to the end of the Eurozone.
 
Drachma may become legal tender in Greece again
 
It seems clear that there is growing support for the opinion that the current strategies for resolving the Eurozone Debt Crisis are doomed to failure. The most likely scenarios are :-
  • a Greek exit, or 
  • a rapid shift to a fiscal union.
If Greece is anything to go by, the current approach of forcing austerity on crisis economies and preserving their membership of the euro leads to dissent by the voting population. If we look at the voters behavioural changes, this seems to have led sentiment towards more extreme parties, both on the left and on the right.
 
In recent opinion polls, the majority of Greek voters (in excess of 75%) want to remain in the Eurozone (but also reject the austerity programme). The issue being, if there is a change/relaxation of the agreed commitments would send a destructive message to all other member states who are part of austerity programmes. This could lead to financial markets losing confidence, outflows of funds from Greece and other associated economies would accelerate, yields on financial instruments would sore. If this was the case it would be realistic to see the Euro could unravel and collapse.
 
A Greek Exit
A Greek default and exit from the Euro could have dire knock-on effects possibly leading to similar financial disasters in Spain and Italy. To prevent this contagion would require the ECB to lend several trillion euros to banks, and the available funds in this scenario are unlikely to be sufficient to cope with the fallout.
 
A Rapid Shift to Fiscal Union
This is expected to avoid the risk of contagion and financial collapse in at least some of the peripheral nations. This would require a substantial move towards a more centralised or federal style control of Eurozone government revenues and expenditures. This includes the concept currently being negotiated of Eurozone government issued bonds on behalf of all member states collectively.
 
If Brussels were to take over the debts of Greece and other struggling peripherals the immediate credit crisis would recede and the Eurozone credit would establish itself alongside US Treasury debt as one of the foremost debt markets in the world.
 
The outcome is stability but the unknown – is at what cost, both short and long-term?
 
This is in direct comparison of the current situation, where the current approach has led to  the Eurozone capitulation to the need to bail out Greece, Ireland and Portugal has undermined the monetary union, and the risk of contagion to Spain and Italy now threatens its very existence.
 
My contact details are :- rel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

The Markets and What’s Next?

21 May

The markets have seen a sell-off in the recent past and I expect this to continue untill some stability returns to the market and this is unlikely until the Greek Elections in June and a government is formed, at the earliest assuming no additional market controvecies.

It is clear that the problems in the Eurozone will keep a chokehold on financial markets in the weeks ahead. Investors and the markets are currently assessing Greece’s commitment to the austerity measures and the Eurozone as a whole – we await other headlines on the debt crisis.

G8 Meeting over the Weekend

 

G8 strongly supported keeping Greece in the Eurozone. No decisive decisions were made but confirmed they would do what was necessary to battle financial turmoil while revitalizing their economies. They stressed the need for strategies to encourage growth.

Greece’s failure to form a ruling coalition after its May 6 election has now led it to a second election in June. Polls show the radical left party is in the lead, and that party rejects austerity measures agreed to as part of the Greek bailout.

 

Reports This Week

  • Monday & Tuesday – Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy
  • Tuesday – US Treasury auctions $32 billion in 2-year notes
  • Wednesday – US Treasury auctions $32 billion in 5-year notes
  • Thursday – New York Fed President William Dudley at Council on Foreign Relations & US Treasury auctions $29 billion in 7-year notes
  • Friday – Consumer Sentiment Report

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Markets Plummet – An Overview

10 May

We have seen markets plummet since the elections over last weekend, down to lows of 2012 as investors took flight from stocks at risk of being dragged down by troubles in the Eurozone. This sell-off  seems to have been triggered, at least in part, by fears that a planned coalition government in Greece will tear-up the austerity deal underpinning the country’s recent €240billion (£190billion) bail-out.

The FTSE 100 Index saw £26 Billion wiped off its value following a further slide of over 100 points. This is a third day running of major sell-offs across most stock markets following concerns over the future of the Eurozone.

Alexis Tsipras, whose Syriza party came a surprise second in Sunday’s poll, is insisting his country’s bailout deal with the EU and IMF is ‘null and void’.

As well as uncertainty over Greece, fears that Spain will need to bail out its banking sector caused that country’s 10-year bond yield to soar again above the ‘unsustainable’ 6% level. This is perilously close to the 7% interest rate on government borrowing that prompted Greece, Portugal and Ireland to seek bailouts.

Financial analysts said the current market turmoil was likely to continue. It appears unlikely that a Greek coalition would be formed considering the rhetoric from the various party leaders, so uncertainty was likely to reign for a while.

‘The worst case scenario for the EU is if Greece leaves the Eurozone and undertakes a disorderly default. It is difficult to see why the country would do this but then again it only takes one angry politician to change history – Greece is staring into the political and financial abyss. Whilst a less likely scenario, if it did happen it could have huge ramifications for the rest of Europe.

A default for Greece looks likely and a departure from the Euro in the next 18 months is expected – this scenario has in excess of 66% outcome expectation – good chance of happening. Greece would not be allowed to walk away from its debts and financial obligations, if it leaves the euro. The likely scenario would be it would be given a greater period of time to repay its debts. The sanctions against Greece, if it attempted to renege on its debts, does not bear thinking about.

These are grave concerns and the ramifications for the Eurozone, global economic prosperity and stock markets are huge.

Investing is about taking best advantage of the market cycle while avoiding the periods of market panic – I am pleased to say, we hold a defensive strategy across all my clients and so we have avoided the worse of the declines and are well placed to benefit from the market opportunities expected to be created by the current market turmoil.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Second Bail Out Secured For Greece

12 Mar

Greece has secured its second bailout on Friday, hopefully giving Greece an opportunity to restore its struggling economy to health. I believe that the bailout deal was the only way to restore the country to economic health.

The write-down/hair-cut/controlled default was possibly the worst technical default a country has suffered with bondholders being forced to take part in a debt-swap deal through collective action clauses (CAC) on Friday. Over 80% (circa 83.5%) of creditors agreed to the deal, which allowed Greece to force the remaining to accept the deal, leading to 100 billion euros being wiped off Greece’s debts by reducing the value of their bonds.

There still remains concerns that Greece will end up needing a third bailout following the unpopular austerity measures, while Greece is still in Recession. Greece needed the 130 billion euro bailout from the European Union and the International Monetary Fund as it had a debt-to-GDP ratio of around 160% (which was unaffordable) and current unemployment of circa 20%. The bailout is expected to be finalised later today. 

The Greek Bond Debt Restructuring Is A Success?

9 Mar

Almost 95% of private creditors have taken up the Greece bond swap offer by the Thursday evening deadline, lightening Greece’s debt burden. This is planned to avoid a default on Greece’s debt liability and has seen bond holders accepting losses of almost 75% on the value of their investments.

The European Union and International Monetary Fund made this bond swap a pre-condition for final approval of the 130 billion euros ($170 billion) bailout, which was agreed last month. The results are expected to be announced on Friday morning and Finance Minister Evangelos Venizelos will hold a news conference before a call with Eurozone Finance Ministers in the afternoon. The result provides good news for the Greek government.

Despite the success of this program, the deal does not resolve Greece’s debt problems but rather reduce its debt liability from 160% of its Gross Domestic Product (GDP). It buys Greece some time to try to restart the economy, which is suffering a recessionary cycle. The concerns of a contagion spreading to other European countries and fear of the threat of failure receded and this led to a rise in the financial markets on Thursday. Bank stocks led the rise, with the risk premium on Italian and Spanish government bonds, amongst others, falling.

In the Friday conference call, Eurozone ministers could decide to clear the overall bailout package but I believe the decision will be delayed until the face-to-face meeting on Monday. To avoid default, Greece must have funds available of 14.5 billion Euros on 20th March to repay maturing bonds. The growing fear and expectation is this will not be the last bail-out needed for Greece; and at some point the Eurozone and their other International Partners will say “no-more”. The question is, “What happens then?” But for now stability is hoped for and expected.

To contact me, email :- welshmoneywiz@virginmedia.com