Eurozone Debt Crisis: The Greek Elections are a Make or Break Moment

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What happens this Sunday, June 17 , may be the trigger for a final resolution of the Eurozone debt crisis.

Now I understand that you probably don't follow Greek elections. But this is one you'll want to keep an eye on. At the moment, it dwarfs the contest between Mitt Romney and President Barack Obama.

In fact, come Monday it will be what every banker, politician and trader is talking about.

In the balance is the very fate of the Eurozone.
The
ripple effects could be enough to actually bring the EU down.

That's the first part of the story. Admittedly, it's not a very pleasant one.

The second part concerns your portfolio, since the solutions will involve more money-printing and, in the long run, more inflation.

But you needn't worry. We've already read the central banker's playbook for you.

In this case, the message is clear. Don't buy Europe. But do buy hard assets — whether gold, oil, or other commodities.

These safe-havens are one of the best ways to hedge yourself against these characters and their money printing schemes.

Now that you know why Sunday is so important, here is how it will likely play out-in both the short term and in the long run.

The Make or Break Moment for the Eurozone

It all comes down to power of the ballot.

If the far-left SYRIZA party under its sinister leader Alexis Tsipras wins, even the EU leaders will have no alternative but to throw Greece out of the Euro. It would be the only way to end that monstrous drain on the region's productive citizens.

However, even if the moderate Antonis Samaras manages to scrape his way to victory, he will be pressured to go back to the table to try to renegotiate the rescue deal just passed in March.

And let's face the facts here. It is highly unlikely the German electorate is going to put up with this affront.

You can't really blame them. If you were in their shoes, you'd feel quite fleeced already.

After all, the Germans have been the major funders of bailouts for Greece, Ireland and Portugal, all of them passed mostly at taxpayer expense. All told, hundreds of billions have been issued in new debt, not much of which looks likely to be repaid.

And now, just last weekend, another 100 billion euro at ultra-cheap interest rate loans was offered to Spain to sort out its banking system.

If you're a German voter, that must absolutely stick in your craw – especially since southern Europeans still have social welfare levels far above yours and aren't really interested in trimming them back.

Austerity?… "You can't be serious," they say.

In fact, France's new president Francois Hollande last week reversed an increase from 60 to 62 in the retirement age, and promised to make it much harder for companies to fire people.

Meanwhile in Germany, it's much easier to fire people than it used to be, and the retirement age is an actuarially sensible 67.

How Much Can the Taxpayers Take?

There is also an additional factor that I apprised you of back in April. Called the "Target 2" payments system, it's a secret flaw that promises to blow yet another hole in the euro.

How big?…

Let's just say the Bundesbank is owed close to $1 trillion by the central banks of Greece, Italy, Spain and Portugal-every nickel of which is above and beyond the bailouts.

Of course, if those countries default, the German taxpayer will have to bail out the Bundesbank, on top of any other obligations.

It makes you wonder how much the German electorate can take before they decide to throw in the towel.

Either way, in the short-term you can expect more bailouts – regardless of which way the Greek election goes. At the moment, France, Spain, Greece, Ireland and the rest of the tottering dominos are simply "too big to fail."

For investors, that means you need to stick to things of real value – especially as the central banks go into overdrive.

But it won't last. When the Germans decide to leave the bar, the party's over.

Further Reading:

Martin's take on the Eurozone elections and their aftermath has been spot on. In this article on May 4th he predicted that Nicholas Sarkozy's days were numbered. Two days later, Francois Hollande began to grab the reins of power…

But what should concern you is what he said in this article. In April he warned that while everybody is watching Spain, it's France that could topple.

Consider it something to put on your radar screen.

Join the conversation. Click here to jump to comments…

  1. philomena | June 15, 2012

    The SYRIZA party's leader Alexis Tsipras has been saying he want to remain in the EU, he says the talk about Greece leaving EU is fear mongering.

    what do you make of his statement that if he wins sunday's election Greece will stay in the EU, but he will throw out the austerity commitment and replace it with "growth" whatever that means.

  2. felicia gossett | June 15, 2012

    It a sad way their planing on getting out of digit .its so sad that they plan to plan to pay people 3.83 for their payment payment and that a small payment when they could pay them more and they know they could but the big business don't won't to pay them what rightly thepeoplesons. Just take the easy way out .the govermentment always does proff us wrong. FELICIA gosseerr

  3. Sotiria Kalotantanou | June 15, 2012

    Martin Hutchinson you represent yourself as a Global Investing Strategist but the style of this "sinister" text sucks!
    "And let's face the facts here. It is highly unlikely the German electorate is going to put up with this affront.
    You can't really blame them"".
    The fact is that Germany benefits greatly by a weakened in Greece, a weakened Ireland, a weakened Portugal and even a weakened Spain because the euro is relatively weak and this helps German's export economy and Germany probably has the most robust dynamic economy in the world.
    They (germany) didint help as they borrow money to as undoubtedly with with no inconsiderable interest rates!

  4. Helene | June 15, 2012

    I M GREEK , SO I KNOW WHAT S GOING ON , I AGREE WITH YOUR OPINIONS!!!!!!!!
    WE ALL ARE IN ….. PINS AND NEEDLES. ABOUT IT.

    MY WISH ..TO HAVE GOVERNTMENT MY COUNTRY. AFTER ALL I WAS BORN IN THE MOST BEAUTIFUL ,ANCIENT REINS, AND. THE MOST GLORIOUS SKY OF BLUE AND THE SEA. THE. ISLANDS. NO OTHER IN THE WORLD !!!!! AS MY CLIENTS ……TRAVELING ALL OVER CARIBBEAN ISLANDS , DECLARE.
    ALSO I WAS READING NAT.GEOGRAFIC THE ISLANDS OF. SANTORINI , AND SIFNOS
    WON THE BEST IN THE WORLD!!!!!!!!!!!!!! ( iF YOU HAVEN T BEEN THERE , I URGE TO HAVE A PERSONAL OPINION SOON…….).

    T.Y. HK.

  5. HERMAN LUIS SCHLAGETER CHARLAIX | June 15, 2012

    HOW ABOUT THE FRENCH ELECTION FOR SENATORS, WHERE PRESIDENT HOLLANDE AND

    ALL THE DIFFERENT LEFT-WING PARTIES, ARE PROPOSING RADICAL ECONOMIC MEASURES

    THE WILL TAKE FRANCE TO THE ABYSS AND WILL BE A REALLY EARTHQUAQUE FOR THE —

    EUROZONE

  6. PANDELAKIS Dimitri | June 15, 2012

    Copy of a mail I just sent to afriend of mine :

    "Congratulations for your newborn baby – something I did already through Ilya !

    If you’ve time, could you please let me know where can I find the two articles written by your two colleagues as mentioned in your today’s comments relatively to our elections, here in Greece : Central Bank Rhetoric and Breakdown of the Greek Elections.

    In my opinion, even if the so-called Radical Left (Syriza) wins the elections, of course the markets will immediately negatively react during the night of Sunday to Monday, – a scenario already seen, in a positive way, last weekend with Spain’s bail out -, but eventually Alexis Tsipras, 37, Head of Syriza, will change “rhetoric” and adapt if not adopt Troika’s recommendations. The vast majority of his electors, generally poor educated, will not even notice…

    Now, to be true, I don’t think Greece will ever be able to reimburse his creditors : the so-called Primary Deficit (budget deficit before payments of the interests) is still here ( + or – 1.5 % of the NDP). It might get slightly better but, in no way, to pay back the core of the debt.

    I am still long in Euro (1.28 – 1.30 ?), although I’ll be ready Monday or Tuesday to go back short. I do not believe the single currency in the long term, to the point that I am not sure if it will exist 10 years from now !

    Best regards

    Dimitri Pandelakis, 78
    HEC Paris – MBA Columbia
    Former GM Greece for Paribas"

    • Dimitris Varelas | June 17, 2012

      Mr Pandelakis,though your name reveals a greek origin,I'm sorry to suggest you that you don't know Greeks at all.
      It would have been blessing for the greeks "not even notice…", BUT the Greeks DO notice, unfortunately for them, TOO MUCH, this is the problem of the unique Greek race.

      By the way, the average greek standard of education is higher than that of any other country's, including the USA.
      Comments like…. "generally poor educated electors" is returned to you and to your teachers. As an MBA holder you should be more careful and respect the legacy of Greece. Remember that american-educated Prime Ministers brought this country in to-day's mess.
      Kalimera !

  7. Alan Bickerton | June 15, 2012

    What are the chances of Germany saying that they will abandon the Euro. Basically saying to he balance of EU and the world, that we've had enough fun and we aren't going to take it anymore. So the D Mark looks pretty good, and oh ya, we can control it.
    Responses would be appreciated.
    Al

  8. Dr. George Daremas | June 15, 2012

    Qite prejudicial in spirit. 'Sinister Tsipras', 'far-left Syriza'. How far-left is a party which has promised to pay back the public debt if only policies of economic development were introduced such that a surplus could be generated instead of the ongoing 'austerity measures' which have led to severe depression (minus 7% of GDP expected for 2012 and more than -20% cumulatively in the present slump).
    The poor Germans who come to the rescue of the 'profligate Greeks'. Germany is not offerring interest-free economic aid but loans out of which it has been receiving sizable sums while the ECB has bought highly discounted bonds which were excluded from the PSI and expects to cash them at their nominal value.
    Germany has been benefitting from the Euro-crisis to the tune of 20 bn euros and keeps benefitting. Because of the crisis it has emerged as a 'safe heaven' and it has been ecomomising on the yields of the bonds it sells while EU southern countries pay exobirtant interest rates.
    Lastly, if 'profligacy' means spending more than one's means permit (via borrowing) then I wonder which country in the world is not 'profligate' (more or less) when the existence of its public and private debts is taken into consideration?

  9. Leslie Flinn | June 15, 2012

    There is no such thing as a safe haven for "treasure" with just one exception:
    Matthew 6:19-21

    New King James Version (NKJV)
    Lay Up Treasures in Heaven

    19 “Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; 20 but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.

    • Kunle Ogunbadejo | June 16, 2012

      Jesus said "Then render to Caeser the things that are Caeser's, and to God the things that
      are God's."-Luke 2025 You don't go to the Church and talk about politics when you are asked
      to comment on the sermon.

      If you don't know how to contribute meaningfully, then go to a site where they are talking
      about the BIble.

  10. SIDNEY H KOSANN | June 15, 2012

    HI,
    IN SPITE OF IT BEING UNCOMFORTABLE READING, YOU ARE RIGHT ON. EUROPE MINUS GERMANY IS
    BACK 100 YEARS. IT IS RIPE FOR A MUSLIM TAKEOVER, THEY ARE NOT CAPABLE OF FIGHTING
    THEM OFF.
    THE U.S. WHICH HAS SAVED EUROPE IN THE 20TH CENTURY IS NO LONGER CAPABLE OF COMING
    TO THE RESCUE. IN FACT OUR U.S. IS BARELY CAPABLE OF SAVING ITSELF. GOLD, SILVER AND
    OTHER HARD ASSETS ARE THE ONLY INDIVIDUAL SAVIOR. THE DOWNSIDE IS OUR GOV'T
    TAKING AWAY OUR LIFEBELT AND MAKING OUR CURRENCY WORTHLESS.

    SIDNEY

  11. Carlos | June 15, 2012

    does it really matter when Central Banks will just keep printing money and inflating assets?

  12. armando salinas | June 15, 2012

    either way Eurozone will be OK,if the Greeks leave,Greece will recover faster,and somebody will buy the debt at about 40%,if they stay the EU is modified to be more like trhe USA.

  13. Dim. Varelas | June 16, 2012

    The Greek Debt: Mr Martin Hutchinson,I have just been through some irresponsible comments,including yours I am afraid,about the 'poor' German tax payers,who are suffering,as you all say,from the bail-out of Greece.
    Let me only mention,that according to comments I watched on TV made by the German Finance Minister Mr W.Schauble,Germany has made recently several hundreds of millions of Euros out of the Greek bail-out.Very simple,they borrow money at 1% and lend it to Greece (the bail-out loans) at 3 to 6% .
    Besides that, Greece creates-indirectly-jobs to the 'poor' German taxpayers as they have-gladly- to work at their factories to produce consumer products,not produced-unfortunately- in Greece, as well as costly military equipment,tanks,guns,sub-marines ,warplanes,warships and other heavy machinery and equipment in order to "protect" its eastern frontier. This last point is the most serious cause that has created a very high sovereign debt. RESPECT!

  14. Calin | June 16, 2012

    "And let's face the facts here. It is highly unlikely the German electorate is going to put up with this affront.
    You can't really blame them. If you were in their shoes, you'd feel quite fleeced already.
    After all, the Germans have been the major funders of bailouts for Greece, Ireland and Portugal, all of them passed mostly at taxpayer expense. All told, hundreds of billions have been issued in new debt, not much of which looks likely to be repaid."
    Dear sir,
    I"m from Romania, Europe, UE. I believe that people living outside Europe do not have a deep and fundamental perception of how things are going around here.
    The German electorate is paying the price for their democratic elected Government failure. They are paying the price for a new failure of their over 100 years tendency to dominate and control by all means the countries in Europe.The German Governments have supported ( both politically and economically) since the " 50 the building of this non-natural structure we call today European Union, European Community and so on, by copying somehow the United States. But, they have forgotten a fundamental fact : The United States are today ( and most likely in the next 50 years too) the most powerful country ( union of states) on earth (economically and military) due the fact it was founded ( more than 230 years ago) starting from ground "o".So, America has developed his unique civilisation based on a multicultural matrix from the very beginning.
    They have come today ( it was 50 years ago but on a historical time we can say " today") and tried to put in one basket people having their own civilisation and history of over 1000 years at minimum ( see France, Britain , Italy, Greece , Spain ,Portugal and many others).
    Do you honestly think that such a structure is stable ? Be proud of your country .!
    Friendly,
    Calin

  15. JosephE | June 16, 2012

    I follow most financial news but no one compares illigal migrants % in individual states to the deficits. Also, what percentage of illigal immigrants are on benefits and free housing etc.
    The fact is that GREECE has the highest % of illigals in any EU state. Greek small business employs many of these on cash bases and apart from evading taxes, they also take away Greek jobs.
    If Europe wants to get better, they have to close all borders to illigal immigrants, send those who are there out of the EU and use the US type green card system. The Middle East and Africa are in turmoil and the boat people are a scurge on all those countries that at being invaded under the guise of human rights. All countries have laws and those who do not want to accept their governments laws are finding easy access to softer countries. This attitude of soft borders only spreads the problem.

  16. Gary P | June 16, 2012

    Marty, I think you should stick to what you are good at, picking stocks, and stay away from political commentary. To assert that the people of the PIIGS have brought them upon themselves by overly generous social programs is inane at best, and at worst, a deception of the worst kind.

    The economies of the PIIGS were crashed by a real estate bubble created by the international banks, first among them, Deutsch Bank. When those loans went bad, the bought and paid for politicians in each of the PIIGS covered the loans with public debt and stuck their citizens with the bill.

    Ireland, just a few years ago one of the most dynamic and robust economies in the world, is a case in point. Irish tax payers shelled out 30 billion Euros to cover the (gambling) losses of the Anglo-Irish bank, virtually all their tax revenues for 2009, and unemployment quickly went to 15%.

    If you truly believe in a market economy, then you should accept that those banks should have been allowed to fail. Instead, the bought and paid for politicians, and you, are blaming the people–and attempting to take away their social and economic gains made over the last 20 years. The bailouts have failed and austerity has failed–for everyone except the bankers. Unemployment is several countries is approaching 25%. Yet the banker fat-cats are laughing all the way to their banks–i.e. former Deutsche Bank head Ackermann and his 8 billion Euro bonus.

    The only country that has come out of this economic mess created by world capitalists and the bankers and their bought and paid for politicians is Iceland. They did it by repudiating the debt racked up by their bankers and politicians, and then they threw a bunch of them in jail. Contrast this to the U.S. where not one banker or Wall Street fat cat has been jailed, or even prosecuted for the trillions of dollars of U.S. tax payers money lost since 2008.

    But don't get me started.

  17. asf | June 17, 2012

    good EU PLAN B:
    Let South be obrero / migrant workers for Euro's again.
    This is how Eu once started.
    Form the EU of willing of the North.
    North is 80% anyway. what's the point splitting between workers and spanish educated obrero's …
    Stop the debt AND flow free labour laws and south can pay.
    A good economy needs dual labour laws. US/mexican. Chineese rual workers ect.

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