Not Out of the Greek Woods Yet

By seadmin

After seven months of difficult negotiations, Greece finally has won the 130 billion euros

in aid it needs to avoid the dreaded March bankruptcy. But that by no means is the end of this Greek tragedy. In fact, now that the bailout deal is done, investors already are weighing the prospect of a possible violation of the terms set forth in the current bailout deal.

Despite the new round of funding, Greece runs the risk of not being able to successfully implement austerity measures that would slash the nation’s debt to 120.5% of gross domestic product (GDP) by 2020, which would be down from last year’s dangerous 160% debt to GDP level.

If Greece fails to make the required cuts in its pensions, in the minimum wage, in health-care and defense spending, and in government-employee budgets, the danger of default will ramp up to red-zone levels. Such a move could take a serious bite out of the value of the euro, of European equity markets, and even of global equity markets.

I’m actually expecting the Greeks to fail on this front. Although I wish them well in their herculean austerity efforts, I just don’t think the political will or fiscal acumen is there to get the job done.

Now, in the chart above of the Global X FTSE Greece 20 ETF (GREK), we see that stocks in the troubled European nation surged in January on optimism over the bailout deal. However, since the bailout was announced, Greek equities actually have dropped sharply.

This price movement is telling, as it shows that the smart money isn’t convinced we’re out of the Greek woods yet. I agree.

Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.

His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.

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Not Out of the Greek Woods Yet