Greek Debt Crisis

It is said that German companies are bargain hunting in Greece as the Greek debt crisis continues. A year ago Greece required substantial foreign loans to avoid default on its sovereign debt. The member of the European Community was not the only nation in trouble. The so called PIIGS and Forex issue has rocked the stability of the Euro for more than a year. At the current state of the Greek debt crisis central banks in the EU are being asked, pressured is a better term, to roll over their current short term loans to Greece. It is unlikely that the stronger members of the EU will let their financially strapped brothers go down in flames. However, that has not stopped companies from Germany from looking for bargains among distressed Greek companies.

In the Greek debt crisis the basic issue for currency traders is not Greek debt but the strength of the Euro. Portugal is also in line for debt relief. In fact, the acronym, PIIGS, refers to Portugal, Italy, Ireland, Greece, and Spain, all of whom have been dealing with debt worries. As the European Community bails outs its weaker members the Euro tends to suffer. At times the Euro has appeared to be in free fall but then it comes to a stop when fundamentals dictate. Now that the UE is seeing a reduction in manufacturing output, similar to what is now seen in Asia and North America, the mid and longer term strength of the Euro is in question. How to trade the Greek debt crisis and its effects on the Euro has typically been learning the timing of how to short the Euro when the debt crisis worsens and to buy Euros in anticipation of a rebound.

A worrisome factor in the Greek debt crisis and its twin in Portugal is the absence of former International Monetary Fund chief Dominique Strauss-Kahn from last minute negotiations. The even hand and sure council of the former French presidential hopeful is gone as the man defends himself against accusations of sexual misconduct in New York. As the effects of the worst recession in eighty years continue there is always the risk of governments repeating the mistakes of the past. It is not clear, with eighty years of hindsight, that the worst of the Great Depression could have been avoided by an easing of monetary policy instead of the tightening of policy that occurred, especially in the USA. As with the issues relating to the Euro and bailing out Portugal traders will watch the big picture. If IMF officials and other choose to tighten monetary policy or even let one of the EU members default on its sovereign debt it could possibly lead to a succession of defaults and a devaluation of the Euro and other currencies. As such many traders are keeping their positions short in trading the Euro, buying options as insurance against unforeseen movement of the Euro, and looking to either the Swiss franc or the dollar as a safe haven currency in such troubling times.