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Joe Barbieri has Bachelors' degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 13 years, with over 10 years on the institutional side of the business. He has covered positions from Fund Accounting to Investment... More
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  • Bond: Greek Bond 0 comments
    Dec 7, 2012 2:47 PM

    The Greek financing saga has been in the news for some time now, but it doesn't seem to get resolved. There is an endless stream of meetings and bailouts and what appears to be no progress. What is different this time is that there is a shift in the attitude within the Eurozone from hard line austerity to a more compromising approach. The Euro ministers are realizing that the Euro is indeed a fragile currency, and a seemingly small country's finances can jeopardize the viability of the Euro situation. In the past, Greece was assumed to need bailout money and therefore would have to play by the rules. This last week, there was a shift which changed the whole situation. There is talk now of the Euro zone writing off a portion of the Greek debt. The projected timeframe is when Greece becomes solvent at some future date (2).

    This is a huge turning point because it shows that if Germany wants Greece to stay in the Eurozone, the Germans are willing to write down their own debt to do it. It is thought that if one country leaves the Eurozone, there will be others that would follow. The domino effect would terminate the Euro. This is analogous to saying that if one player at the poker table cannot pay his debts, all of the other players can also walk away. Aside from Germany, most of the players at the Euro poker table are in financial trouble.

    Should the writing off of debt become a trend, the debt may be reduced significantly, and the losers will be the issuers of the debt rather than other stakeholders: Citizens or anyone doing business in Greece. Is this a sign of desperation? It was not that long ago that the idea of writing off debt was not even entertained in public. Now it seems this is a key variable being discussed in the finance meetings. (1)(2)

    Sources:

    1) http://www.nytimes.com/2012/12/03/business/global/03iht-ministers03.html?pagewanted=2

    2) http://www.bloomberg.com/news/2012-12-02/merkel-softens-on-write-off-as-greece-prepares-buyback.html

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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