Greece’s financial problems have attracted a lot of attention recently as Germany has finally overcome its reluctance and bailed out the Greek government.  Of course this was officially a pan-European effort, but the real players were Germany and the International Monetary Fund (IMF).

While what is happening in Greece is interesting in itself, it is not really the main story.  Perhaps Greece will go through the period of austerity without a glitch, or perhaps the Greeks while prepared to make sacrifices are not prepared to make sacrifice their first born so that their corrupt and profligate government does not go bankrupt.  Who knows?  As ever, we don’t.

However the real show is the raid of the bond vigilantes, and they’ve moved on from Greece – at least for now, but who knows when they will be back?  There are other more tempting sites.  Within the Eurozone there is Spain and Portugal and not as far behind as they’d like to think but Italy.  If both Spain and Portugal go under then the Euro will either have to jettison them or become a joke currency.  And the pace is quickening, Portugal has already been downgraded.  Ireland has done the right thing and raised taxes and cut spending and seems to at the moment have the social discipline to see this through.  However Italy, one of the largest economies in the world, is in a similar pickle to the other Mediterranean countries.  While the Euro could conceivably sail on without Spain or Portugal (but not without both) Italy will blow the thing apart.

And how are the markets reacting to this great danger?  Well the Euro seems to be going up.  That looks like an opportunity to short the Euro.