Showdown Between Greece Lenders Could Cause Euro to Plummet

The Greece lenders continue to fight about the best way to handle a fourth bailout for the country, and the July 7 deadline is fast approaching.

And if a resolution is not agreed upon soon, the euro could plummet against the dollar. While this may rattle global markets in July, Money Morning Capital Wave Strategist Shah Gilani has a way for you to profit over 100% from the growing fears of a Greek default.

Between July 7 and July 20, Greece has six massive debt payments due. Those payments add up to €8.2 billion ($8.9 billion). However, Greece doesn't have the money to pay all of them.

That has left Greece's two main lenders, the International Monetary Fund (IMF) and the European Union (EU), at odds with each other over how to deal with the Greek financial crisis.

What Are Greece Lenders Fighting About?

At the core of the showdown over Greek debt is a difference in philosophy.

Germany (the main holder of Greek debt owed to the EU) wants Greece to implement more austerity measures to make sure that Greece has a surplus to pay debt. The austerity measures would increase taxes (and revenue to the government) while simultaneously cutting government spending.

The problem with austerity measures is twofold.

First, the Greek economy has been shrinking since 2008. Greece's GDP has dropped from $354.5 billion in 2008 to $194.9 billion in 2015. The austerity measures don't allow the Greek government to pump money into the economy to spur a recovery.

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Second, the IMF argues that even if Greece was able to hit Germany's tough austerity requirements, it still will not be able to pay its debt.

Under the current austerity measures, Greece must have a budget surplus of 3% of GDP, excluding debt payments. That means if GDP stays at about $200 billion for 2017, the government will only have a surplus of $6 billion to pay the $24.76 billion in debt payments that are due this year. That leaves about 75% of the debt payments unpaid unless Greece is able to get another bailout.

Greece has to make debt payments every year for decades, but this is the toughest year for Greece. This year's repayment total is €22.9 billion ($24.76 billion). Next year, the country only has €3.7 billion ($4 billion) in payments due. In fact, 2019 is the only other year until 2052 that Greece has more than €10 billion ($10.81 billion) in payments due.

By extending due dates and forgiving some of Greece's debt, the IMF argues that the country would be able to pay down its debt with the surplus. That would allow bailout money to go towards stimulating its economy rather than making debt payments.

However, if Greece's lenders don't come to a compromise, the potential for a Greek default will cause the euro to plummet.

In 2015, the euro dropped 3.82% in one month, leading up to and just after Greece's default on its payment to the IMF. While that may not sound like a lot, keep in mind currencies usually don't move very much at all. In fact, the euro lost only 2.73% to the dollar over the past 12 months.

If Greece's lenders can't come to an agreement, the fear is Greece would be forced out of the Eurozone if it defaults on EU debt. That could cause a long period of turbulence for the country, Europe as a whole, and world markets.

But at the end of the day, the banks have a problem if Greece can't pay, so there will be an agreement. When you owe as much as Greece does to individual institutions, they need to get their money back, even if it takes longer. If they don't, the financial institutions holding Greek debt could go under.

The other party that has a problem if Greece can't pay: Germany. The German economy depends on a single currency in the region so that it can export its goods. Something like a Greek exit from the Eurozone could spell trouble for German exports.

It will likely be a rocky road to get to an inevitable agreement, and markets don't like uncertainty.

That global uncertainty led Gilani to find this 100% profit opportunity. While others may be panicking, Gilani's euro trade will help you profit from this global uncertainty...

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