Why is a Greek default negative for EUR?

4 posts / 0 new
Last post
Vic
Vic's picture
Offline
Joined: 06/14/2011
Hat Tips: 500
Posts: 26
Why is a Greek default negative for EUR?

The threat of a Greek default is sending the Euro lower. Why is that?

I get where a Greek default would absolutely send the price of Greek bonds lower (since Greece is unlikely to pay), and if the ECB promised unlimited bailouts of Greece, the Euro would also go lower (since ECB would just print all these Euros to bail out Greece), but if Greece actually defaulted, why is that damaging to the Euro?

It seems that, if you have a Greek bond, it is because you want more Euros. You bought the bond, denominated in Euros, in order to collect the interest payments, also denominated in Euros. You traded Euros for the bond, and the bond promises more Euros. If Greece defaults on the bond, I see where that makes the bond worth less (or worthless), but I don't follow how that makes the Euro drop.

Edited by admin on 11/08/2014 - 06:05
Seb
Seb's picture
Offline
Joined: 06/15/2011
Hat Tips: 85
Posts: 34
Maybe the cause of this is

Maybe the cause of this is the potential domino effect that a Greece default could have on the other PIIGS and then beyond those countries.

TheGoodDoctor
TheGoodDoctor's picture
Offline
Joined: 06/14/2011
Hat Tips: 11941
Posts: 1286
Picture worth 1000 words

__________________

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.” Norm Franz

TheGoodDoctor
TheGoodDoctor's picture
Offline
Joined: 06/14/2011
Hat Tips: 11941
Posts: 1286
Picture worth 1000 words 2

http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=globalhome

Here it is again. You might just want to open it in another window. It will be easier. Just look where the debt will roll up to if there is a default. There is the answer to your question. If you note, Greece is the smallest of the bunch.

__________________

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.” Norm Franz

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Topic locked
Syndicate contentComments for "Why is a Greek default negative for EUR?"