Eurozone trouble strikes once again! Even though the European Central Bank (ECB) has announced it will buy unlimited bonds, the prospects of any improvements are still bleak. And countries are suffering, as no real solution has been implemented.
The root cause of the credit crisis in the eurozone can be traced to certain governments not being able to repay the debt they issued due to a confidence crisis. The governments then sought a bailout from the ECB. In return, ECB imposed austerity measures on the countries who wanted bailouts.
Those austerity measures failed miserably and the debt-infested troubled eurozone countries deteriorated further. Now another round of trouble is brewing and Greece is at the forefront of it again. Greece needs to pay 5.0 billion euros on November 16 to investors who bought the government’s treasury bills. The problem this time around is very similar: the government doesn’t have the money to pay. (Source: The Wall Street Journal, November 5, 2012.)
With that said, other eurozone governments and the ECB know that the money they give to Greece will most likely never come back to them. In that regard, the International Monetary Fund (IMF) is suggesting the ECB and eurozone governments write off some of the loans they have given to Greece.
I’ve recently returned from Europe. The people I spoke to while I was there told me they see Greece exiting the eurozone as a 90% foregone conclusion.
Looking at the bigger picture, writing off loans to Greece is more likely to lead to more problems than to a solution. Instead of just one country falling behind, the entire eurozone will get into further trouble.
If all of this actually occurs, prepare for an even greater global economic slowdown than we’ve already experienced. Yes, the Greek economy is small. But if Greece exits the eurozone, what country is next? Spain is a much bigger economy and a bigger potential problem than Greece. The ECB is running out of options. It can’t print money like the Federal Reserve, as not all eurozone countries (especially Germany) are onside with money printing.
We have been reading and hearing about the eurozone crisis for years now and nothing seems to be getting done about it. Austerity measures have not worked, the IMF thinks the ECB and countries that lent money to Greece should write off those loans. Spanish banks are in big trouble. The real estate market has not improved in the troubled eurozone countries and unemployment in large eurozone countries is a nightmare.
My answer? Just have Greece exit the eurozone. Ten years from now, they’ll be better off for it.
Where the Market Stands; Where it’s Headed:
It looks to me like 2013 will be the turning point for the stock market. That bear market rally I have been writing about since 2009…I doubt very much 2013 will be a part of it. The year 2013 will be when Phase III of the bear market that started in 2007 gets underway.
What He Said:
“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in Profit Confidential, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.