The EU Is Fumbling the Greece Situation

by: Markos Kaminis

The EU needs to act immediately to inject solid and reliable financial supports to ensure Greece can access capital markets at manageable cost. The EU's paper promises have only left Greece hanging precariously in crisis.

Greek financial mayhem continued Wednesday after a rumor that Greece sought to renegotiate terms with the IMF and EU Tuesday drove Greek bond yields chaotically higher. We dispelled the unfounded Greek news yesterday, but the euro continues to be troubled and Greek bonds remain strained today.

This morning, light was shed on the fact that IMF officials were in Greece meeting with Greek ministers. IMF officials said their team was in the country to advise locals on how to improve Greece's financial management. However, some are speculating that the IMF meeting may be effectively laying the groundwork for future concrete IMF assistance for Greece. EU President Herman Van Rompuy legitimized IMF inclusion by reminding the European Parliament of Europe's extensive contributions to the IMF (in other words, "it's our money anyway, boys.") Certainly the IMF inclusion is a politically savvy way for German and other EU leaders to help Greece and preserve political position.

The euro touched a new low for the week on Wednesday. The action was partly on trend with yesterday's move, but likely assisted by news that Greek banks have asked for permission to access the remaining funds that were made available in a state support package set in 2008. If Greek banks are folding under the pressure now, then concern is rightly directed on Greek bond yields and the euro. Pressure on most Greek banks is likely to continue as the Greek populace is likewise pressured by impossible austerity measures. However, some banks, like the National Bank of Greece (NYSE: NBG) enjoy a special situation, with its Greek risks diluted by significant international operations. NBG looks to us like a diamond in the rough as a result, yet not without Greek exposure and commensurate risk.

It is clear to us that the EU needs to act sooner rather than later. The uncertainty surrounding the potential Greek default is working to undo the words of support Europe tentatively put in place. Van Rompuy took a stab at stabilizing the situation by repeating the paper promise of Europe. He said the EU stood ready to aid Greece should its capital raising attempts fail to ensure its solvency. Still, the market has its doubts, and investors should not be blamed for placing their bets on default in such a chaotic environment.

Even if Europe's delay is due to Greece's hope to make its own way, the players that be need to focus on the fact that financial markets might make solvency impossible without immediate European action to inject solid and real financial supports.

Author's Disclosure: No Positions