Thoughts on Greece

by Michael J. Howell25. June 2015 23:19
A deal will be done (1) This is not a bailout. The bailout was in 2010 and private creditors effectively got out then. The big lenders now are Governments and we are talking about robbing Peter to pay Peter. In short, the IMF/ EU will lend to Greece, so that Greece can pay them back. This is about debt roll-over, not new lending. (2) Debt roll-overs can be tricky, but in this one only Governments are involved. The lesson of Lehman (where a private sector solution was sought) is a clear one. Don't let it happen again. If Greece were raced out of the Euro, markets would ask 'who is next?' (3) Zimbabwe and Argentina are not good models to follow, i.e. devaluation failed. This is why Greece will stay in the Euro, even if she technically defaults. (4) Greece needs incentives e.g. low tax zones, not austerity, to make itself grow. (5) Europe needs a pan-European banking system. This crisis is trickier because local banks, holding local debt are involved. If Deutsche Bank were the only bank in Greece, there would be fewer issues. Politicians will encourage M&A and consolidation. Investment conclusion: bearish for Euro near-term (US$ bullish). Bullish for Eurozone banks long-term.


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