The European Union refuses to budge on the idea of letting Greece and possibly other member states restructure their debt. This is unfortunate because it is exactly what they need.
EU spokespeople continue to chant that “there will be no restructuring.” Greece, the EU and the IMF worked feverishly a few months ago to keep roughly $400 billion in public debt out of default, but some economists say that the best cure is to admit that the country still cannot meet its long-term obligations.
If that happened, Greece would be free to sit down with the banks and work out a deal that would probably reduce the overall amount it owes — possibly by as much as 50% — without wrecking its economy with austerity programs.
Needless to say, the banks (and their shareholders) are not optimistic about that prospect, and so the pain continues.
At this point, it looks like the euro (and euro-denominated ETFs like EU) will stay on the defensive until regional monetary authorities can provide a convincing argument for how Greece (and Spain, and Portugal, and Ireland) can save their way out of debt.
Otherwise, the risk of a total default — which will rob banks holding Greek bonds of everything — is still too high to ignore.
Among publicly traded banks, a restructuring-related haircut or outright default would hurt BNP Paribas (BNPQY) and Commerzbank (CRZBY), each of which holds about $5 billion in Greek debt.
Neither of these banks are compelling buys until the situation is conclusively resolved.