Many of us have been glued to the Greek bond crisis and will wonder what this has to do with the future of Europe. But the main thing we should be thinking is whether this can turn a profit.
The thing is that it hinges on a number of uncertainties.
Will Greece leave the Euro? She may have to but she will strain every muscle (as will the European Union) to avoid this.
Will Greece have the ability to balance her budget? While the shock of the crisis may convince Greeks to knuckle under and “do an Ireland” to cut her spending and raise her taxes, this is also quite unlikely when looking at past behaviour. More importantly the markets don’t believe it and it’s their verdict that counts.
Will Greece default on her bonds? We don’t know, probably not but that’s not a certainty.
Will Europe bail Greece out? This is the most likely thing that could be done. Under Article 122 of the Lisbon Treaty a majority vote of countries can decide to bail out a country if it is affected by external events (how external Greece’s bond crisis was is open to debate).
Will the crisis go to other heavily indebted countries such as Spain, Portugal, Ireland and even Italy? This is really the big question. These countries are in trouble, and they are much bigger than Greece. Perhaps they are too big for the European Union countries to convincingly bail them out.
So how do you use spread betting and contracts for difference to profit from this uncertainty?
First if you think that this crisis will spread then you should be bearish on the Euro and long on the dollar. There’s also the question of the UK’s exposure. If they have to spend billions to rescue other countries then this could increase tax demands in the UK, which will send the FTSE down, although this will be one of many factors with the FTSE, so shorting sterling may be a better bet.
Of course it may be overblown, and if you think that then it’s a good idea to reverse these bets. You’ll have quite a big market for this. If you’re feeling adventurous then bets on the Dublin, Madrid or Rome stock indices may be a good way to play the crisis.
The main thing to look for are spread bets or CFDs on long term interest rates. These may have to rise sharply to cope with a shock to the system.