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Tags: spetrino | Greeks | euro

Greeks Have Good Reason to Embrace the Euro

By    |   Thursday, 14 June 2012 08:06 PM EDT

Over the weekend the Greeks will decide if they will leave the euro or signup for the austerity program that has been put forward for them.

Many have predicted the demise of the euro.

This is my take on the whole situation.

Editor's Note: Join the 3.5% of Americans who are truly wealthy and financially secure.

The European banks are full of Greek bonds. Obviously if Greece defaults, then the banks will have to raise capital, like we did here in the U.S in 2009.

In the past, Greek officials promised to reform themselves, the European Union and the IMF gave Greeks money and the contagion danger ended.

However, this time Greek officials keep threatening to leave the euro and want a revised austerity settlement.

I believe that the ECB and IMF are sick of this irresponsible Greek behavior.

I think they are prepared to pay the interest on the bonds but not give Greece another penny for their salaries and their bloated government.

Those trying to gain power in Greece seem intent on playing chicken with the IMF and ECB.

I expect that the Greek public will be worried by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement


It's very simple. If the Greeks left the euro, their salaries’ and pensions’ buying power would be cut by 40% overnight.

Not happening.

Editor's Note: Join the 3.5% of Americans who are truly wealthy and financially secure.

However the Greeks will not follow the agreement, and in three months this will become an issue again.

The euro, however, will not break up.


The euro will survive because its demise would be a disaster for all the countries, even Germany.

Germany has two reasons to keep this situation stabilized:

1) Germany has large claims against the periphery countries of the eurozone that will be unenforceable if the euro broke up.

2) a return to the Deutschemark would almost certainly price Germany out of its export markets; plus, as you know, Angela Merkel is up for reelection this year.

The question is will Germany, which has to approve all of this, put together an efficient agreement.? Banks need a deposit insurance agreement like we have with the FDIC to slow down the capital flight. Also direct financing by the European Stability Mechanism (ESM), which has to be coordinated with eurozone-wide supervision and regulation.

So this weekend, watch for the Greeks to narrowly support the austerity agreement, and they will probably be given some concession so the politicians there can pretend they actually had a choice.

Either way, all this drama has strengthened not weakened U.S big money-center banks.

The pundits who peddle doom and gloom won't tell you that or any of this.

But real investors know otherwise, and now so do you.

About the Author: Bill Spetrino

Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.

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Thursday, 14 June 2012 08:06 PM
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