Crisis Talks In Greece
It seems that no one is happy in Greece and very soon everyone will have more about which to be unhappy. Crisis talks in Greece are focused on forming a government. Greece has a parliamentary system in which voters elect ministers of parliament. The political party that gets a majority gets to form a government and make one of their people the head guy, the Prime Minister. If no single party gets a majority it is possible for the lead party to negotiate with another party or two in order to get enough votes in parliament to form a government. When the vote is split among several political parties with widely differing political views the job is more difficult. And that is the focus of current crisis talks in Greece. The point of all this for anyone who trades stocks, commodities, Forex, or futures or options on these is that the situation and resulting crisis talks in Greece are upsetting markets worldwide. Greece is the focus of global attention because the Euro Zone is dealing with a widespread debt dilemma by tightening its collective belt. The belief of voters in Greece as well as France is that Euro Zone austerity leads to recession. People are out of work and angry. And they are voting their sentiments.
What specifically disturbs investors and interests traders is that the crisis talks in Greece need to succeed in forming a government or Greece will go back to vote again the second half of June. By that time Greece is supposed to have undertaken specific austerity measures in order to receive the next installment in a painfully negotiated bailout. It Greece does not follow through due to lack of a functioning and willing government it will not receive the bailout funds and it will default on government bonds that will come due at that time. Experts forecast a run on Greek banks and a return of Greece to the Drachma, its currency prior to entering the European Union and taking on the Euro as its currency. The problem for Greece is that its debt is denominated in Euros so that if it switches back to the Drachma it will need to print a lot them and hugely devalue them in order to pay off its debt. That assumes that anyone will want to accept them. A stock trading strategy at this time needs to take into consideration the possible effects of a Greek deb default, a run on banks across Europe, collapse of credit from these banks, recession in Europe, and a global economic downturn. It turns out that crisis talks in Greece deserve global attention.
Those holding Greek debt bonds are in a funk and have been for a couple of years. Bank stocks in Europe may be hit badly if crisis talks in Greece fail. Then, will US bank stocks fall as well? Factor in the JPMorgan loss of $2 Billion in six weeks with credit default swaps and you have an argument to short bank stocks or buy puts on the same stocks.