Not Everyone Is Betting Against Greece

The Greek debt crisis continues along with the threat of Greece exiting the EU and the Euro. Things look pretty grim but isn’t that just when one should invest, according to the old blood in the streets analogy? The New York Times reports that not everyone is betting against Greece. American billionaire Wilber L. Ross Jr. is investing in the Greece debt deal.

Mr. Ross, who built his career investing in distressed assets, is the ringleader of a group of investors who last year pumped 1.3 billion euros, or about $1.47 billion, into Eurobank Ergasias, the third-largest bank in Greece.

In the weeks to come, the fate of Mr. Ross’s money – along with the whole Greek financial system – may hinge on whether the country’s leftist government can avoid the chaos that would accompany an exit from the Eurozone.

In the interim, Greek banks are in a perilous state. The uncertainty about the country’s future means that Greek banks cannot raise cash on the international monetary markets. Without cash, the banks cannot lend. The result is a vicious circle in which businesses cannot get credit, hurting employment and profits and causing tax receipts to decline just when the government in Athens desperately needs cash.

Mr. Ross is not a billionaire because he is dumb. This man has made a lot of money investing in both Ireland and Cyprus which had similar dilemmas. Partly the strategy is that Europe must reach a deal because the consequences of a Greek exit followed by others are unthinkable.

Playing Games

Bloomberg asks, what game is Greece playing? Is it, as Bloomberg suggests, a game of chicken? While not everyone is betting against Greece many are wondering just how the two sides are going to get together and structure a lasting, functional solution.

The repeated willingness of Greece and its creditors to bring the entire euro area to the brink of disaster presents a difficult and fascinating question for economic theorists: What game are they really playing?

On the surface, it seems like a classic game of chicken, in which each side tries to look determined enough to make the other crumble. The creditors, including the European Union, the International Monetary Fund and the European Central Bank, insist that they can’t provide any more debt relief or loosen their austerity demands any further. Greece pushes for more, suggesting that it is willing to default on its debts, possibly triggering an unraveling of the monetary union, if it doesn’t get its way.

It might also be a prisoner’s dilemma, as my Bloomberg colleague Justin Fox suggested back in February. Both sides would be better off if they cooperated, but distrust prevents them from doing so. As a result, the creditors keep demanding terms far too onerous for Greece to meet, and Greece edges toward a disorderly default that would be the most costly outcome for the creditors.

The reason for the European Union is to foster relationships based on trade, mutual trust and mutual success. None of this currently working out for Greece as austerity measures have essentially killed its economy. The powers that be in the EU need to remember its reason for being. This real progress will happen.

Stocks Halt Selloff

Proof that not everyone is betting against Greece came from the stock market which turned around on good news about negotiations over Greek debt. Reuters reports on Greece hopes.

U.S. and European shares rebounded after several down days on Wednesday, with Wall Street surging on a report that Germany may be satisfied with Greece committing to at least one economic reform in return for aid.

The German government may settle for a clear commitment by Greece to a measure upfront to unlock aid, Bloomberg reported, citing two people familiar with Germany’s position.

It may be that Germany, at least, has come to terms with the need to give Greece a little breathing space in order to forestall a disastrous exit from the Eurozone.