Do The PIIGS Get Slaughtered?

PIIGS – Portugal, Italy, Ireland, Greece, Spain

These are the train wrecks in the Euro Zone.

Here is a chart showing the percentage of Government Debt held by foreign banks. The fattest of the PIIGS is no doubt Greece.

The real issue with all of this is that these countries are loaded with too much bad debt and have no way to print money to inflate away the debt, because their currency is now The Euro (Britain was smart enough to keep the Pound and is printing money as fast as it can make new ink).

This leaves the PIIGS with few options – default or leave The Euro and print piles of their new currency. Euro Land has told Greece that it will not eat their debt, so the cost of Greece’s Debt Insurance (Credit Default Swaps) has gone vertical over the last two weeks.


Why does this matter?
Because almost 30% of Greece’s Treasuries are held by foreign banks – no doubt concentrated in Europe. So if Greece defaults, then these banks have to eat massive write-downs. Moreover, I think that this would force Greece to leave The Euro. This would either crush the Euro, because it is no longer a valid Union, or send it vertical on speculation that it will ultimately only include the strongest members of Europe.

We’ll see how it plays out, but I am watching it closely.