Choosing Sides In The Eurozone Mess

By Bill Holter – Re-Blogged From

This past week was filled with geopolitics 24/7 until Friday, when they finally spilled all over the markets. The market action was extremely ominous in my opinion and especially the last hour into the close. Very shortly I believe we will be faced with huge market “gaps” which will be the topic for tomorrow, today let’s discuss how the current geopolitical situation will detonate the leverage.

It’s not as if the geopolitical situation wasn’t already hot enough before the Greek vote, now the world has a polarizing event to deal with.  This past week was

a sparring match between the Syriza party of Greece and the EU, a line in the sand has now been drawn, Feb. 28.  Before looking at all of the sides being chosen and alliances being formed, it is important to understand that “lines in the sand” are a very VERY bad thing indeed …especially when we are talking about “nations”.  Drawing a line in the sand and placing a date on it means someone must lose face on one side or the other.  Don’t get me wrong, one way or the other Greece will implode financially, it will open the floodgates for other weak southern European nations and ultimately destroy the Eurozone as we know it, but, now there is a hard date for all of this to occur by.  A Greek failure or exit will also set off a derivatives chain reaction, this is what I believe Friday’s market action was portending.

The Euro/Greek fracas is not all there is, there is much more including the Russia/China/India meeting and the Russia/Iran allegiance, I will bring them in later, for now,  let’s focus on Greece since the Eurozone has now declared them the “firing pin”.  Greece is a financial wreck.  They have national debt at a rate of 175% of GDP and rising, especially as GDP continues to collapse.  They also experienced bank runs by the public over the last several weeks and saw outflows of more than 10% of total deposits.  Their stock and bond markets crashed this week as interest rates approached 20%, Greece will mathematically go down one way or the other.

Over the next 25 days, some “philosophical” decisions will need to be made, none of them will be pleasant.  In a nutshell, Greece wants its debt balances lowered in a “haircut fashion”, the ECB cannot agree to this as they would then have to admit losses and no longer be able to price Greek debt at the ridiculous price of “par”.  The Troika wants to offer 7 billion euros as an extension package to prolong the game, Mr. Tsipras flat out rejected this on Friday (thus the market action) and does not want to accept it, he is steadfast in lowering the amounts owed rather than taking more handouts and increasing the debt balances.

This is a true showdown and one where no matter what happens, no one wins because the losses have already taken place.  Greece has already borrowed too much and cannot pay it back so the losses arealready in place whether admitted and acknowledged or not.  Please understand that Greek bonds act as “collateral” within the derivatives daisy chain.  Any write down or write off will be considered a “default trigger” where margin calls are issued to an already illiquid and under capitalized derivatives chain.  The financial system is in a position where calling a spade a spade will cause the roof to cave in, not calling it a spade and ignoring the reality is the only thing keeping the game alive to this point!

Enter Mr. Putin and the Russians, they have offered aid to Greece should they turn East.  This would be a disaster for Europe herself as the next question would be “who’s next?”.  The bottom line is this, as I said “the losses have already taken place”, are they recognized now or later?  One last point about Greece, should they lean East, but stay as a member of the Eurozone and NATO, they can now veto any sanctions the U.S. would like to place on Russia …ironic in a very dark way don’t you think?  Greece would be a huge win for Russia in so many ways and an even bigger loss for the West in every fashion imaginable.

China, Russia and India will meet on Monday in Beijing, can you imagine what will be discussed?  Especially after Mr. Obama just visited India last week?  Will it go something like “whatever they offered you is either not best for you …or an outright deception”?  Will India be offered a spot at the Eastern monetary table, the future “big” table if you will?  Are they being given a heads up on any timing issues or even requested to lower their gold tariffs to put a further squeeze on Western vaults?  Interesting stuff!

Switching to the Middle East but again including Russia and by extension China, Iran and Russia seem to be dancing partners!  This has very big ramifications when you look at it from the religious/allegiance standpoint.  Iran is Shia which means they have a natural allegiance toward Syria, Russia also has


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