The Most Important Question When It Comes to Greece

The Greek people decided that the austerity, tax hikes, 25% unemployment and overall economic misery only benefits their creditors. They voted to not accept the terms offered last week by their European creditors. So now what?

We will know a lot more after finance ministers in the euro zone meet today and whether or not the European Central Bank (ECB) will provide emergency funds to Greek banks that have been closed for the last week.

The ball seems to be in Europe’s court right now. Will the ECB provide emergency funds to allow Greek banks to re-open? Will creditors – and more importantly, the Germans – agree to a massive write-down? Will Greece leave the euro zone and the euro altogether? When you answer one question, more come up.

The most important question is whether or not a write-down will happen. If so, other weaker members such as Italy, Spain, and Portugal could demand the same. If the ECB plays hardball and Greek banks remain shuttered, that could signal Europe’s willingness to let Greece exit the euro altogether and suffer the consequences.

The “no” vote may have caught some by surprise. But so far, the markets haven’t overreacted.

Stocks traded lower in Europe on Monday and opened lower here in the States. Treasury bond prices moved higher with yields lower as money flowed to the safety of high-quality bonds. But for the most part, Greece’s vote hasn’t had much effect on them.

For now, investors seem content that the Fed will hold off on raising rates and perhaps that the ECB will come to terms with Greece.

Long-term bond rates have been bouncing within the month long range of about 3.05% to 3.25%. If the Greek situation gets messier, we could see another flight of capital to the safety of U.S. Treasury bonds and a break below 3.0%.

Lance Gaitan

Lance Gaitan

Editor, Dent Digest Trader