Forex: Any suggestions on the best way to short Greek Euros against the EUR?

(Last Updated On: November 14, 2011)

Forex: Any suggestions on the best way to short Greek Euros against the EUR?

 

Against german eurs is the trade……..

 

You guys are both bankers and should know better. There’s no such thing as “German Euros” or “Greek Euros”. A Euro is a Euro is a Euro, and there’s only one kind. Germany and Greece both share the EUR.

Like they say on Monday Night Football: come on, man!

 

Actually I am anticipating a Greek exit from the EUR. In such a situation it would be good to have a EUR liability with a Greek bank that gets converted to New Drachma and instantly devalued, whilst holding an asset in “German Euros” like bunds.

My question is does anyone have a smart idea about how to do that?

 

methinks the Greek banks will be holding net liabilities wrt anything with a rounded-off E in front of it. It is for that reason that they are on the brink of a massive default.

 

Yes agree totally and think that is only going to get worse as locals move money offshore to avoid being converted into new Drachma.

I think the best way to position is to borrow long-term fixed EUR from a Greek Bank that will be converted into new Drachma in the event of a EUR exit, and use the proceeds to buy Bunds. Negative carry but I think the bigger issue is being able to actually take out a loan unless you live there. The banks aren’t exactly flush with cash there at the mom.

 

Let’s follow this through. Locals send EUR abroad. They acquired it 11 years ago at 350 GRD to the EUR or thereabouts. GRD comes in. It devalues to about 1,400 or so (life went 4 times more expensive overnight in Greece when a bottle of water from GRD 50 went to 0.50 EUR; 1/7 of a EUR to 1/2 EUR is roughly 4 times including any 11 year inflation). So now the Greeks with EUR abroad have x4 their initial capital. what will they do next? What if they decide that ultimately they have to buy bread with GRD and bring it back start buying GRD. What next? I like this very hypothetical conversation.

 

this is very real question and i think you could learn from experience from Agrintina. they used to have a pegged currency to the USD, until they defaulted. anyone borrowed in local currency and invested overseas were hugely profitable.

 

Isn’t borrowing from a Greek bank the same as shorting a Greek CDS? How does this CDS change if Greece exits EUR?

 

In Argentina you borrowed ARS which was pegged to the USD and then ARS devalued. Cool. In Greece, you will borrow today what exactly? EUR of course, there is no GRD. So if it defaults, you believe that the Greek banks will convert your loan from EUR to GRD and then the GRD will devalue so you will owe much less? Seriously? They will convert the deposits into GRD, not the loans! They will keep those in EUR… they will have assets in EUR and liabilities in GRD… the Greek banks will make the money who by then they will be government owned as they will go bust

 

Buy a holiday home in Greece and obtain a mortgage (for 90% of the value of the home) from a Greek Bank. When the GDR comes back, you are looking at snapping up the property for a fraction of the value and can have very cheap holidays with your European Euros to Corfu for a very long time.

 

If you can find a Greek bank today that will lend you 90%, please let me know. If you find a bank that will convert your liability, and their asset, into GRD, again let me know

 

I was wrong. The Grece will not exit the EURO-zone.
But, they don’t have anymore the CB to make the fine tunning of their financial markets. The fine tunning is made by ECB but this is not the same for every country involved because there are big diferences.
Anyway, the bigest problem is the guvernement spending.

 

Check out CRIS<go> on your Bloomberg for some staggering debt to gdp numbers and can give you greater insight into market expectations of a sovereign default within the EU.

 

they should pretend like the Greece does not have any problems, and whenever they don’t have money for the payment, they (EU) should make their payment.

 

you may find this of interest, highlighting the web of liabilities across EU (and beyond)
http://blog.thomsonreuters.com/index.php/debt-in-the-eurozone-graphic-of-the-day/

 

Greece is small country and its debt can be manipulated and controlled inside the EU.
The problem becomes serious with other countries in EU which have also big debt. Now, the problem is Italy’s debt crisis (1.5 trillion). It has problems regarding issuing new bonds (interest more than 6.5% – is it sustainable and how long time?). If Italy can not borrow – is then EU capable to lend Italy?

Standard & Poor’s ratings agency sent out a message to France saying it will downgrad France’s prized “AAA” credit rating. What will happen in EU?

I beleive things will go worst and EU shall soon forced to depreciate its currency by issuing new money in the market.

 

 

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