Lucas Papademos, Greek Prime Minister, is trying to negotiate with his government to try to approve a rescue plan for its ailing economy. The Prime Minister is set to begin his pitch today after a late night meeting with members of the European Commission, ECB and IMF with regards to putting the final terms together for a 130 billion-euro rescue package. The Greek government has a 14.5 billion-euro bond payment on March 20th that government officials are trying to scramble to find the money.
The rest of Europe watches on as Greece is getting worse by the day and closer to economic collapse as debt talks continue to show no progress. Right now, Greek politicians are trying to agree to a second refinancing plan that will involve a debt swap of 100 billion-euros off its 200 billion-euro privately held debt load. However, investors will likely be looking at a 70% loss on Greek debt as it tries to desperately cut its debt load. It should be noted that Greece has new loans that could equal up to 130 billion-euro more of debt. A formal offer of the debt swap must be made no later than February 13th to make sure Greece will have the 14.5 billion-euro needed for its March 20th payout.
Greece is literally living day to day at this point. Politicians can’t compromise on a rescue package that was made available by the ECB and other sources. Countries such as Germany want to be able to have full control over Greece’s financials because so much money has been given to Greece will little to show for it. It is not my job to speculate whether or not Greece is going to fail but rather to say that investors need to be cautious. If Greece does default, US markets will be affected and you need to have your portfolio ready for a beat down. On the flip side you should have some risk in the event that Greece does get its act together and gets itself out of this mess. There will surely be a nice rally waiting for us in that scenario. Either way, you need to be prepare yourself and your portfolio.