All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Could Orderly Default of Greece Help Stabilize The Euro?

Last updated 9/23/2011 3:13 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Greek Finance Minister Evaneglos Venizelos stated that Greece face three possible scenarios with respect to its sovereign debt situation. In a speech to Greek lawmakers Mr. Venizelos said that Greece could face a unilateral default, a 50% haircut for its bondholders or the implementation of its July 21 deal with EU under which it would receive a second bailout of 109 billion euros.  

Mr. Venizelos noted that  "It would be dangerous to request the 50 percent haircut,” adding that "This would require an agreed and coordinated effort by many.” Despite his reservations, this was the first time that Greek officials have publicly mentioned the idea of an orderly default and suggests that EU policymakers are seriously weighing this option as a possible solution to the Greek debt crisis.

Greek economy  remains in a deep depression and many market analysts have pointed out  that additional loans such as those negotiated  in the July 21st bailout would do little but saddle the country with more debt service that it cannot ultimately repay. If Greece is to stay within the European monetary union it will need capital in the form of  a direct  grant or it will need to reduce its debt obligations by 50% as Mr. Venizelos noted.

No actor in the European debt crisis saga wants to see a disorderly default caused by any unilateral  action by Greece. Therefore this this talk of 50% reduction in Greek debt obligations may  ultimately prove to be the only practical option left.

Risk FX was mildly higher ahead of the European open, as currencies took their cue from a slight bid in equities. After yesterday’s vicious one way selloff risk assets may stabilize and rebound especially if investors begin to believe that EU officials are making a serious effort to provide a long structural solution to the problem of Greek sovereign debt. The EUR/USD  has rallied back above the 1.3500 level and could stage a further recovery if equity markets remain supportive.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.