Fri 1/19/12 2:30 PM – Oh, to be in Greece!

Oh, to be in Greece – land of gorgeous islands, quaint fishing villages, centuries of history and culture . . ! It is also the developed country with the worst financial problem.

Over the weekend, maybe announcing as early as today, an agreement is being worked out with the private creditors who hold Greek national debt to swap their short-term, often high interest loans for long-term Greek bonds with rates around 4% and worth somewhere around 35 cents on the dollar. Banks have already been forced to take a steep haircut on their bonds. The only group not taking a huge loss is the European Central Bank and by extension, European governments.

the problem is it only cuts Greece’s debt to GDP rate from 160% to 120%. That is still very high and their economy is shrinking rapidly. Corruption and cheating on taxes are rampant, as are big pensions for all kinds of people.

An announcement will likely boost stock markets in the short term but the basic problems are far from solved.

Europe will be in the spotlight for the next two months at least. There are a number of high-level meetings and significant deadlines, not least of which is 3/20 when Greece must have money to pay maturing debt. All this will kick up the volaility again. Over the last four weeks, stock market volatility has been very low, believe it or not.