Greece and Eurozone to Fall Into Economic Turmoil? How to Profit
There is yet another Greek tragedy playing out across the Atlantic, where legendary poets, mathematicians, scientists, and thinkers once roamed. Fast-forward several thousand years and the country once known for its proud history is cracking at its foundation, burdened by tens of billions in debt and fiscal chaos. (There is a way investors can profit from Greece’s potential demise, but more on that later…)
Syriza Party to Negatively Change Economic Outlook in Eurozone?
Making the situation even more uncertain for this poor cousin in the 19-country eurozone is the recent transformation in power with the left-wing Syriza party, under Prime Minister Alexis Tsipras, assuming control. The problem for the stability of the eurozone is that Tsipras’ party won on a platform to revise the country’s previous bailout requirements.
Greece wants to alter the austerity demands set by the previous government and lenders. Of course, the eurozone is refusing to do so and expects Greece to honor its original deal.
One of the revisions Greece wants is a cut in the country’s budget surplus to 1.5% of gross domestic product (GDP), rather than the set three percent. Simply put, Greece wants to spend more, which would impact the debt obligations to the eurozone.
Things like bringing back pensions, increasing wages, and other spending is clearly not what the eurozone wants Greece to do. The eurozone realizes that a steady return to lowering spending and debt in Greece is the way to reform and potentially strengthen the region.
Greece faces a big debt repayment this summer and all signs point to a refusal to play. This Greek drama could get messier, with Greece’s exit from the eurozone being a possible outcome.
Standard & Poor’s has cut its credit rating on Greece to junk status.
Greece’s Exit Raising Concerns for Eurozone Economy
Now, you may think that the strong members of the eurozone, specifically Germany and France, would have no qualms if Greece and the other PIIGS countries (Portugal, Ireland, Italy, and Spain) were to leave the eurozone. But nothing could be further from the truth. If the weak countries exit from the eurozone, this could result in the euro surging. Clearly, that’s not what the eurozone desires, given its fragile state.
Recall the European Central Bank (ECB) recently decided to buy about 60 billion euros in bonds each month in its own money-printing strategy to jumpstart the eurozone.
Greece is in a mess, and the situation will likely worsen if the new government refuses to honor its debt commitments. And there is little the eurozone could do except to hold back new funds. We could see a revision to the terms as a start, but this is uncertain.
The Potential Investment Opportunity…
Chart courtesy of www.StockCharts.com
From what I understand, I doubt I would be buying any Greek companies, given the immense risk. But to play further weakness in Greece, aggressive traders could take a look at a Greece-focused exchange-traded fund (ETF), like the Global X FTSE Greece 20 ETF (NYSEArca/GREK).