Market Overview

How to Profit as Greece Shuts Down Again


The Capitol of Greece was brought to a standstill on Thursday as thousands of public transport workers went on strike in protest of the latest round of austerity measures that are aimed at convincing Greece's international creditors that the country is serious about reducing its fiscal deficits.

Athens was filled with traffic jams as workers switched from public transportation to their own cars in an attempt to get to their offices. The striking public sector workers shutdown the bus, metro and rail lines. Air traffic controllers also took part in the strike for a few hours, which delayed or canceled many flights at Athens' airport.

Thursday's strike is the first in a planned round of protests over the next month that will bring much of Greece to a standstill. While there is talk of a public division between public and private sector workers, the Greek union representing civil servants, ADEDY, and the union representing private sector workers, GSEE, have been working together in opposition to the government's austerity measures. The two organizations said that they plan a nationwide public sector strike for October 5 and another nationwide general strike for October 19.

Although most of the initial pain felt by the government's attempts to reduce its deficit has been felt by the public sector employees, the private sector is reeling as well because spending cuts and raised taxes have driven the economy deeper into recession and taken money out of the pockets of consumers. There is growing widespread resentment against the Greek government because many Greeks believe that the government is pandering to outside interests to the detriment of the Greek people. The ruling Socialist party is losing support and the latest round of strikes will put further pressure on the Greek government to roll back many of the austerity measures that international investors have insisted upon for Greece to receive any more international aid.

German Finance Minister Wolfgang Schaeuble recently sent a chill through the financial markets when he warned that if Greece failed to convince its international creditors that it is committed to all of the reforms that it agreed to in order to receive bailout funds, that the next round of bailout funds would be withheld. Schaeuble made the threat after talks between Greece and the so called troika of the International Monetary Fund (IMF), European Central Bank (ECB), and the European Commission (EC) broke off because Greece failed to convince the group that it would stick with all of the austerity measures that it said it would enact in order to receive bailout funds from the group.

The Greek government had hoped to shift more of the focus of the talks to promoting economic growth. Greece's economy has worsened because of earlier austerity measures, which has cut into tax revenue and made further spending cuts necessary if the government is to meet its budget goals. However, the IMF, ECB and EC still insist that the Greek government focus on lowering its budget deficit. Failure to do so puts the next bailout installment of 8 billion euros at risk. If Greece doesn't get the 8 billion euros in bailout funds, it could run out of money to pay its bills within weeks and cause the country to default and drop the euro as its currency.

Greek Prime Minister George Papandreou has said repeatedly that a default is not an option and that Greece will stay within the eurozone. However, his words are sounding increasingly hollow as much of the Greek populace protests against policies that will only cause them economic pain for the foreseeable future.

As a Greek default is looking more and more likely, the question is whether a Greek default be brought on by internal or external forces. Much of the Greek populace is up in arms over the austerity measures and there's only so much pressure that the government can withstand before it's forced to concede to the people's wishes. If the current Greek government doesn't roll back some of the austerity measures, it risks being forced from office. The opposition has called for snap elections and will continue to do so for as long as the ruling party continues to lose support. If the opposition comes into power, it may do more than just reverse the austerity measures pushed through by the current ruling party. It could decide to default and withdraw from the euro so that Greece can focus on rebuilding its economy and regain control of its monetary policy.

The current Greek government is looking increasingly vulnerable, so it may eventually move to reverse some of the austerity measures shortly after it receives the 8 billion euro installment from its creditors. If this were to happen, Greece could be cut off from any future aid and a default would only have been postponed by weeks or months.

Whatever the outcome, a Greek default is looking more likely and could lead to other troubled countries like Portugal and Greece either defaulting on their debts or forcing the European Union and the IMF to restructure their debts. Such an outcome could mean it's just a matter of time until the eurozone breaks up. While citizens of countries like Greece, Spain and Italy are growing frustrated with the endless rounds of austerity measures, the people of countries like Germany are growing weary of shouldering the financial burdens of weaker member states.

Investors who feel that a Greek default is coming may want to consider buying either the ProShares UltraShort Euro (NYSE: EUO) or the Market Vectors Double Short Euro (NYSE: DRR). As the euro comes under more pressure, each of these ETFs could move higher.

If Greece is able to avoid default, the iShares MSCI Europe Financials (Nasdaq: EUFN) ETF should do well. Many European financial stocks have fallen recently because of their exposure to Greek debt. Moody's Investors Service even downgraded two of France's biggest banks, Societe Generale and Credit Agricole, in part because of problems caused by their exposure to Greek debt. If Greece is able to avoid a default, the European financial sector should post significant gains.


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