Monday, May 21, 2012

Article Notes from BBC Story: "What happens next if Greece leaves the eurozone?"

Link to Original Article: What happens next if Greece leaves the eurozone?

1. Greece has been Unable to form a government.
2. the type of government that will be put in power will determine if Greece is to stay in the Euro - in other words; the choice is A) a government that is for austerity or B) a government against the austerity (eg not willing to pay back the Euro back for bailouts). If the government is not going to accept the austerity it is likely Greece will have to leave the Euro. Austerity is a strict form of government cut-backs which are usually considered undesirable.
3. Greece has such high debt, high unemployment, and other problems; that it has to rely on bailouts to function at it's most basic level of governing (eg pay government public service workers of whom also have to accept cut backs as part of the austerity plans).
4. The Greece problem is multi-faceted (having many aspects). In the beginning Greece did not even qualify to be in the Euro because it joined while already having debt that was higher than the Euro-Zone's standards. So this problem didn't exactly happen overnight and the contagion has spread throughout Greece; and even throughout the EuroZone because of bailouts and investments from other countries that have took major losses with investment in Greece. Greek investors already had to take major losses on their investments earlier this year and technically it was at that point the Greek had already defaulted on their debt in the form of massive write-downs.
5. Some think a default is in the books. However, if Greece defaults now the problems they have now may be 2-fold. For one they will not be able to borrow to sustain their government. Then when a new currency is established it is very likely it will be highly devauled because it will have to borrow against itself to sustain the new government. There will be a lack of confidence for a long time to come before new investors will invest again in Greece because it would be like a gift investing with more turmoil very likely to come - at least in the short-term to medium-term most are going to stay away from Greece investment. In the long term there may be hope for Greece but not until there are signs of stability.

Neal Vanderstelt - Currency Analyst

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  1. Greece is really in great trouble. Greece have to face the business bankruptcies, market turmoil, and the political backlash that is going to happen if they exit from Euro Zone.

    By: exchange rates

  2. It's a good possibility. The big thing to watch is the elections and how Greece responds to newly elected leaders. The new leader might be anti-austerity which would be a big minus for the Euro currency.