The jobless rate in Greece climbed to 18.2% in November, up from 17.5% in October and 13.5% the previous year. Given that the economy is falling apart and the government is running a huge deficit, it may make the bond swap negotiations meaningless for long term holder of Greek debt. The country needs to find a way to fund its ongoing 21.6 billion euro annual deficit. The declining economy will make it even more challenging to shrink the deficit. Greece is going to run out of money and when it occurs all their sovereign debt will head toward zero in value. Analogies to rearranging deck chairs on the Titanic seem entirely appropriate.
Obviously, for short term traders and hedge funds holding Greek debt and CDS's looking for quick profits on their positions, the PSI negotiations will have a major impact. However, my guess is the long side of Greek debt trades will be a challenging way to make money, even for short term traders looking to flip their positions.
55,000 Greek businesses are going to close down in 2012 according to forecasts by the National Confederation of Greek Commerce. If this forecast turns out to be accurate, then the pace of business failures in Greece is picking up steam, as approximately 30,000 businesses shut down in each of the past two years.
With over 45% unemployment among 15-24 year olds, the danger of social unrest is rising. If social unrest leads to rioting or events that scare tourists away, it could speed up the collapse of the Greek economy.
It is hard to foresee any outcome for Greece other than freeing themselves from the Euro. While the short term consequences would be nasty, the long term benefits of a devalued drachma might be the only way to revitalize the Greek economy.
The collapsing, insolvent Greek economy will not be fixed simply by forcing bond holders to take a haircut on their holdings. Even if the PSI negotiations come to a successful resolutiona
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