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Charles Sizemore
Charles Sizemore
Articles (507)  | Author's Website |

Greece Drops a Bomb on Europe

November 02, 2011 | About:

Well, the Europeans thought they had a deal. Yet it appears that Greece had other plans. Proving yet again that Greece is not worthy of EU membership and is incapable of handling the responsibility that comes with using the euro, Prime Minister George Papandreou threw last month’s grand debt bargain to the whims of the fickle Greek electorate by calling a referendum in January. The move appeared to catch all major parties to the deal–including Mr. Papandreou’s own finance minister–completely by surprise and drew harsh criticism across the board. World stock markets collapsed on the news as investors are left to grapple with the question: What happens now?

What happens if Greek voters say “no” to the terms of the bailout?

This is The Sizemore Investment Letter’s analysis of the possible outcomes:

  • A “No” vote will mean that aid from the various organs of the European Union would immediately cease, forcing Greece into a “hard” default rather than the negotiated “voluntary” restructuring. Though it would be unprecedented and there is no process in place for it, Greece would most likely be expelled from the euro zone and quite possibly the European Union itself.
  • A “Yes” vote might preserve the fragile status quo. But at this stage, it might not matter. Papandreou’s move confirms Northern European (and primarily German) worst fears about Greece’s credibility as a negotiating partner. Good faith has been shattered, and European leaders will not not risk embarrassment by trusting Mr. Papandreou or his successors again.
  • The referendum might not happen at all. Mr. Papandreou’s own party is in open revolt over his unilateral decision and is demanded that he resign. Of course, a snap election would throw additional political uncertainty into the mix, which–again–points towards an unruly hard default.
Greece is due to receive an €8 billion euro bailout payment in mid-November, but that would now seem to be at risk. Why would the Europeans throw an additional €8 billion when default is now all but guaranteed?

The next 24 hours will be telling. If Papandreou resigns and is replaced by a “national unity” government, there is an outside possibility that last week’s deal can be cobbled back together. But at this point, it is more likely that Greece is thrown to the wolves and left to fend for itself.

If Europe’s leaders move quickly and send an unambiguous message that the crisis stops with Greece, Europe can avoid a meltdown. But it will involve a rigorous implementation of the remaining planks of last week’s agreement. The European Central Bank will have to step in to support the Italian bond market and to act as a lender of last resort to Europe’s banks. And the monies that were to be used to prop up Greece should be used to support Europe’s banks, which will still need to be recapitalized.

In the meantime, get ready for more volatility. And you can forget about the “risk on” trade that I mentioned last week. While I recommend using any volatility as an opportunity to accumulate high-quality European and American dividend payers that will survive Armageddon–crème de la crème blue chips like Sizemore Investment Letter recommendations Unilever (NYSE: $UN), Telefonica (NYSE: $TEF) and Nestle (NYSE: $NSRGY)–I cannot in good faith recommend more speculative sectors like financials or commodities. And once the dust settles–which might be a while–you might also revisit those Three Greek Stocks to Consider AFTER a Greek Default.

Hang on tight, dear reader. 2011 promises to have a wild finish.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

About the author:

Charles Sizemore
Charles Lewis Sizemore, CFA is the chief investment officer of Sizemore Capital Management. Please contact our offices today for a portfolio consultation.

Mr. Sizemore has been a repeat guest on Fox Business News, quoted in Barron’s Magazine and the Wall Street Journal, and published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures and Options Magazine, and The Daily Reckoning.

Visit Charles Sizemore's Website

Rating: 3.8/5 (6 votes)


Batbeer2 premium member - 5 years ago
IMHO Papandreou is doing precisely what must be done.

The people of Greece are blaming everyone but themselves for the current problems. With this referendum they'll need to face the facts.

Leading to the vote, there'll be a a fundamental discussion (we'll find out many Greeks aren't idiots). The "no" campaign will need to come up with alternatives and they probably can't. All this will be publicly debated.


Without the referendum, the debt will be restructured which looks great on paper but nothing will have changed.

In coming decades, the people of Greece will blame anything that goes wrong on the Germans and Koreans and.... but not take responsibility. Imagine the type of politician that will capitalize on this.

>> Prime Minister George Papandreou threw last month’s grand debt bargain to the whims of the fickle Greek electorate

WOW..... Mr. Market is going nuts and blames Greek voters.

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