logo
  Join        Login             Stock Quote

Will Greece Exit Euro?

 May 30, 2012 11:58 AM


(By Mani) The sovereign debt crisis in the Eurozone, which has been waxing and waning for more than two years, has come back into the forefront of investors' minds recently.

Markets around the globe are tiding in a negative sentiment over the potential exit of Greece from the Eurozone. Greece, which has received about $300 billion in bailouts in the past two years, has been struggling to narrow its fiscal deficit and ultimately staring at a huge fiscal gap in fiscal 2013-14

The catalyst for the most recent outbreak of market concern was inconclusive parliamentary elections in Greece on May 6. Roughly 70 percent of the electorate backed parties that campaigned on a platform that would either scrap or water down the austerity measures that previous Greek governments negotiated with its creditors.

[Related -La Jolla Pharmaceutical Company’s (LJPC): Mr. Everything Keeps on Buying, and Buying, and…]

Although 70 percent of Greek voters supported parties that want to renegotiate austerity measures, polls show that a similar percentage wants the country to remain in the Eurozone.

As talks to form a coalition government ultimately failed, President Papoulias has called for another election that is now scheduled for June 17. At present, Greece is governed by a technocratic government headed by Panagiotis Pikrammenos.

In this scenario, the key question on the investors mind is whether Greece should exit Euro?

Greece is in a similar situation to what Argentina was in a decade ago. The Greek economy is extremely weak at present as real GDP in Greece has plunged more than 15 percent over the past five years and further declines are inevitable, at least for the foreseeable future.

[Related -Weyerhaeuser Co. (WY) Q2 Earnings Preview: Some Warning Signs]

Although there are parallels between the Argentine and Greek cases, there are important differences, as well. The key difference is that Argentine pesos circulated in tandem with U.S. dollars. Therefore, when the peg was broken in early 2002, Argentina still had a domestic currency that was in circulation. The Greek drachma last circulated in 2001.

"Therefore, an abandonment of the euro and a reintroduction of a "new" drachma would entail significant adjustment costs across different sectors of the economy," Wells Fargo economist Jay Bryson wrote in a note to clients.

 "If Greece refuses to live up to the austerity measures and reform its economy, the so-called "troika" (i.e., the European Commission, the European Central Bank (ECB) and the IMF) likely would be unwilling to approve the next tranche of financial aid to the Greek government," Bryson added.

In that case, the Greek government would probably default on its debt as its government bonds would be worthless as collateral, the ECB would not be able to extend liquidity to Greek banks, leading to their collapse.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageIntegrated Device Technology Inc. (IDTI) Q1 Earnings Preview: Another Beat and Pop?

Integrated Device Technology Inc. (NASDAQ:IDTI) will issue first quarter 2015 financial results on July 28, read on...

article imageHerbalife Ltd. (NYSE:HLF) Q2 Earnings Preview: The Potential To Shock?

Herbalife Ltd. (NYSE:HLF) will release its second quarter 2014 financial results after the close of trading read on...

article imageHealth Net, Inc. (HNT): Potential to Be Huge Winners Says Bank of America

As of this keystroke, Health Net, Inc. (NYSE: HNT) shares are up around 4% on the day. The managed health read on...

article imageHomeAway, Inc. (AWAY) Q2 Earnings Preview: Top and Bottom Line Bullish Surprise?

HomeAway, Inc. (NASDAQ:AWAY) will report its financial results for the second quarter ended June 30, 2014 read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.