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It’s all Greek, or is it?

September 19, 2011 – 5:00 pm

Over the weekend nothing new came out of the European debt crisis as the market this morning continues to worry over Greece. The Europeans do not want to give Greece any more money until they make policy changes that frankly the Greeks agreed to but have yet to implement. Greece is supposed to implement certain austerity measures and the rest of Europe is trying to enforce those moves. Meanwhile the EU has promised them money and is ready to hand it over.

Many are calling for Greece to default and leave the EU. Germany, the strongest and largest economy by far is trying to hold everything together. In fact the European Union as a whole is in better shape than the U.S. when comparing debt to GDP ratios, but the Union is a loose confederation of very different political and economic countries, all with one currency. So Greece cannot just print money to solve their problem like we can in the U.S.

The market is focused on this EU problem, worrying that it might spread to other countries which would further slow not only the growth in Europe, but the rest of the world. That is possible, but also possible is that if or when Greece defaults and deals with their bankruptcy and the banks in Europe take their losses on their loans things will improve dramatically. The Banks will be supplied liquidity from their governments. No European government will let their banks go under so they will supply them with all the funds they need. So either Greece will or will not default. Either way will be painful in the short run, but Greece is so small it really is not the issue. It’s the contagion that has everyone worried. That is what the EU needs to address.

Good Trading
Steve Peasley

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