Unraveling the Layers of Greece Situation


The Greek debt scenario continues to unfold and affect the world equity markets. There has been a lot of focus on the bailout plan and the accompanying austerity measures. There are other players in the game however, and their involvement is becoming more apparent. Past articles did mention private banks and lenders who had to take “haircuts” on their interest payments. (8)(9) Recently the debt holders agreed to a swap of their debt for longer term debt, at a substantial loss of the debt principal. (10)(11) Has anyone ever considered how the situation got to where it is today, and what impact the past has on creating the present situation? In order for a country to join the Eurozone, there would be certain financial conditions that would have to be met. It is assumed that these conditions were tested before a country joined the European Union to ensure that the Greece scenario did not happen. Wouldn’t you want to know if someone was going to pay their share before you do trade with them? It turns out that such measures were part of the Maastricht Treaty, but for whatever reason, they don’t appear to be effective. (1)(2)(4) Is it possible that some countries really didn’t have the resources to succeed in the Eurozone but were allowed in anyway? This seems to be the implication of the deal with Goldman Sachs.(3) This deal may not have criminal intentions, but the complexity of the agreement may have not been in the best interest of the Euro countries. Why would such a deal be necessary if the Greece fiscal situation was adequate? Are there other countries that perhaps had weak financial records but were allowed into the Euro anyway? It is possible given that every country saw benefits of being in the Eurozone, and being left out would be quite detrimental. This is still the perception today with Greece staying in the Eurozone.(5)(6) In hindsight, it is not only the Greek people who are paying the price, but the private bondholders as well.

Sources

1)      www.intereconomics.eu/downloads/getfile.php?id=114

2)      http://www.eurotreaties.com/maastrichtec.pdf

3)      http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html

4)      http://www.roubini.com/briefings/94893.php

5)      http://data.worldbank.org/indicator/GC.DOD.TOTL.GD.ZS/countries

6)      http://www.gfmag.com/tools/global-database/economic-data/10395-public-deficit-by-country.html#axzz1cdgNxPcC

7)      http://www.cfr.org/eu/eurozone-crisis/p22055

8)      http://www.bloomberg.com/news/2012-02-09/greek-politicians-reach-agreement-on-austerity-steps-for-aid-draghi-says.html

9)      http://www.bloomberg.com/news/2012-02-08/greek-bailout-talks-stall-on-pension-dispute-talks-to-resume-imminently.html

10)  http://www.bloomberg.com/news/2012-03-09/eu-approves-47-billion-for-greece-while-backing-bond-swap-with-creditors.html

http://www.bloomberg.com/news/2012-03-09/isda-says-credit-event-occurred-with-respect-to-greece-debt-restructuring.html

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About joetheinvestor
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 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

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