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War Room 06/23 Eurozone Debt Crisis

War Room 06/23 Eurozone Debt Crisis. War Room. Monthly macro discussion Using tools in context Feature for subscribers only Feedback - what should it to be?. EuroZone Crisis = Confusion. CNBC - Germany Softens on Greece ‎. WSJ - Greece in Bailout Talks With 'Troika'.

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War Room 06/23 Eurozone Debt Crisis

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  1. War Room 06/23 Eurozone Debt Crisis

  2. War Room • Monthly macro discussion • Using tools in context • Feature for subscribers only • Feedback - what should it to be?

  3. EuroZone Crisis = Confusion CNBC - Germany Softens on Greece ‎ WSJ - Greece in Bailout Talks With 'Troika' Bloomberg - Geithner Says EU Leaders Failing to Speak With Unity on Greek Crisis Washington Post - Europe heaves sigh of relief as Greece survives trust vote‎  NY Times - Argentina's Default Offers a Cautionary Tale for Greece ‎ The Media has pulled this in all directions.

  4. PIIGS debt (as % of GDP):Worse than Argentina at time of default Argentina’s debt at time of default: 65% Source: World Economic Outlook, April 2011, International Monetary Fund

  5. Greek Bond Yields compared to PIIGS Source: Financial Times, June 23 201

  6. Bond Yields – Greece 2011 vs. Argentina 2001 Source: Bloomberg Yields on Argentina’s bonds during the 2001 crisis… … compared to yields on Greek bonds – creeping up more gradually, but headed toward the same result.

  7. Why Greece will default • Greek financial situation is worse than Argentina in 2001 (Argentina defaulted) • 70% of Greek debt is foreign-owned, making default more palatable domestically • Greece simply not competitive at current Euro exchange rates – but default would enable devaluation • Ratings agencies have declared that any major modification to debt terms will meet default criteria (managed default)

  8. Three potential outcomes • Euro Crisis Averted – Greece has an efficientlymanaged default, leaders get it on the right track (a la GM), and keep Greece on the Euro, giving an example for the other PIIGS nations • Greece defaults in Isolation – Greece defaults, falls out of the Eurozone as a martyr, starts printing its own devalued currency, and leaders keep the other troubled PIIGS nations on the Euro and salvage their debt situation • Eurozone collapse – Greece defaults, leaders fail to contain the situation (a la Lehman), and the PIIGS nations follow Greece’s lead, falling out of the Euro, going back to their own currencies, causing a run on the Euro

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