Greece Formally Asks for Rescue

The week long surge in borrowing costs finally forced Greece toformally ask to tap the 45 billion Euro ($60 billion) rescue package providedby the European Union and the International Monetary Fund.

The week long surge in borrowing costs finally forced Greece toformally ask to tap the 45 billion Euro ($60 billion) rescue package providedby the European Union and the International Monetary Fund.

The unprecedented move by Greece threatens both the Euro’sstability and the structure of the European Union. Traders are now asking if Greece gets the money then what about Spain, Portugaland Ireland. Many feel that these three countries are nextin line for a rescue as debt problems spread across Europe.Based on current developments, the very existence of the Euro is now beingquestioned.

When the Euro was created a little over 11 years ago, thefounding fathers gave the European Central Bank the power to control interestrates and fiscal responsibility to the individual countries. The current crisishas threatened the cohesion of the European Union as many member countries haveturned their back on the sovereign debt problems of struggling member nations.These “solvent” nations are going to have to be convinced that the Euro isworth saving by ponying up the funds necessary to save the economies of thestruggling members or risk debt default and the collapse of the Euro.

With the cost to service its debt sky-rocketing everyday,Greek Prime Minister George Papandreou had no choice but to ask for the money.After reaching unsustainable levels that were destroying the efforts by theGreek government to cut its budget deficit, Greece had to cave in and make therequest for bailout funding. As of last night, the cost to finance 5-year Greekcredit default swaps soared to 623 basis points before settling at 590 bp afterthe rumors of the activation of the rescue plan began to circulate.

Although the Euro rallied in a short-covering rally as newsbroke of the bailout, investors still have to be pessimistic about theviability of the Euro. The main concern at this time is the inability of theEuropean Union to come up with concrete rules regarding the terms of thebailout loans. Prior to the bailout proposal put together in haste earlier inthe month, the EU had no such plan. In looking-back, it looks as if that planwas not designed to strengthen the Euro, but to stem the pace of its decline.

Now that Plan A has failed, the prospects for Plan B do notlook that much better as EU members appear to be making up this plan as they goalong. The trick is going to be trying to convince the solvent EU members that Greece is worthsaving. Furthermore, the EU member are most likely going to have to considerputting together a plan which also provides aid for Spain, Portugal and Irelandor any other nation that will need aid. The second part of the equation may beconsidering booting all of these struggling nations out of the club since it hasalready been proven that despite austere measures to shore up the budget, thecapital markets are really controlling the show.

Traders and investors want clarity at this point. They wantto have a fully understandable mechanism plan in place as soon as possible toprevent the collapse of the Euro. If history gives us any clues, however, theEU will drag its feet and fail to live up to its responsibility as a partner. Germany especially will be the biggest hurdlefor Greeceand the other sovereign nations to overcome. Not only are the Germans againstany kind of bailout plan, but the Greek citizens feel that a bailout will makethem appear weak to the global community. This means that eventually the nextbailout plan will fall squarely in the hands of the International MonetaryFund.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More