Good Greekf!

"Good grief." - Charlie Brown

No the heading is not a typo but a poor play on words as it seems to me that there is a very lackadaisical attitude towards the Greek debt issue.  Not only does it seem that the world's leaders and markets have assumed that Greece will remain in the Euro they have also assumed that the debt will be repaid!  Less than a year ago Greek debt was yielding less than 6% and today with default imminent it is only at 14%, hardly a big number considering the risks of default.

If I look at the situation from a turnaround and restructuring perspective it appears to me that the Greeks have nowhere to turn other than to leave the Euro and default on all of their debt.  Sure they have the ability to recover but they need the ability to let their currency devalue steeply to achieve the necessary stimulus that lower prices will have on tourism and exports.

While some may argue with me that leaving the Euro would be suicide I would point out that adding new debt to an already over burdensome debt level definitely will not sort out the problem.  Reducing the debt to a manageable amount would raise the heckles of Portugal, Spain and Italy so this is virtually off the table; so all that remains if they stay in the Euro is to lend them more money essentially kicking the can once again down the road.  This is exactly what happened last time this crisis was here and all it did was delay the inevitable for two years.

Even a moratorium on all debt and interest payments for say 5 years would still not provide enough runway to repair all of the structural problems that Greece faces and I question whether their current leader is mature enough to handle such changes.  In fact until these structural changes are implemented even leaving the Euro would not solve their problems in the long run but it seems to me to be a far higher probability than the markets are expecting.

So if the markets are not pricing a Greek exit from the Euro and it happens then there will be bloodshed in the markets next week for the simple reason that it would be an unexpected outcome.  To me it should not come as a surprise however the depth of the market correction will be unknown.

I would like to wish all of my America colleagues, friends and readers a very happy 4th July.