Europe, Greece Work For Deal

European negotiators work towards a Greek debt settlement by February 1.

The 11th hour negotiations continue between Greece and private creditors over the size of the “haircut” that private creditors will be forced to take and whether or not the European Central Bank will share in the pain.

The clock is ticking towards a March 20 deadline when Greece says it will default without outside help and the country is looking for more help from the European Central Bank which apparently doesn't want to participate.

The Institute of International Finance is deeply involved, and its head, Josef Ackermann, thinks there will be a solution but that it is still not a done deal and failure could lead to contagion with Portugal and Spain.

IMF Chief Christine Lagarde has said that the European Central Bank may have to take a hit on its Greek bonds, but the bank is the largest holder of Greek bonds and doesn't seem interested (no surprise) in taking losses that could be as high as 70% on its investments.  The ECB has about 40 Billion Euros worth of Greek debt and says that it shouldn't take losses because it would damage confidence and faith in the institution and harm its effectiveness in further managing the crisis.

European ETFs seem to think that a successful resolution of the Greek crisis will be found as the were mostly positive today:

Vanguard MSCI Europe ETF: VGK +0.3%

iShares Italy ETF: EWI +0.15%

iShares Spain ETF: EWP +0.3%

iShares Germany ETF EWG +0.75%

iShares Europe 350 ETF: IEV +0.25%

Bottom line: While the world's financial elite meet in Davos, the most important issue of our time reaches its final act and the world waits for a settlement, finally, of the Greek crisis.  Success would likely unleash a huge rally in European ETFs while failure could trigger a global meltdown.