Clarity required in euro debt solution, says Spotlight Ideas’ Stephen Pope

Stephen Pope managing director of Spotlight Ideas, has put forward a six-point programme that he believes would make the solution to the eurozone sovereign debt crisis more transparent and believable.

It is clear that European equity markets are lacking confidence even though the worst one could say about the morning corporate news is that it is mixed.

Clearly the mood toward L’Oreal is that “its not worth it” as the cosmetic manufacturer dipped 1.5%. On the plus side Vodafone gained 1.4% on news that the Supreme Court in India ruled that the mobile phone carrier announced it will not be liable for taxes on the acquisition of Hutchinson Whampoa’s wireless activities back in 2007. On balance though the retailing news has been really shabby for revenues may have risen but only on the back of huge price discounts in the run up to the Christmas season. Consumers have been cash strapped and so have increased their elasticity of demand. That means the demand curve has made a shift toward a flatter or horizontal bias therefore eroding pricing power. With Internet or As Seen On Screen “ASOS” buying steadily rising across Europe the elasticity of substitution has also risen…in short “there isn’t not a whole lot of pricing power around”.

So let us turn our minds to Greece. If you saw yesterday’s paper on kurtosis one can see (no prizes here) that Greece is further away from realm of feasible finance than Pluto is from the sun.

Private investors will have to swallow 68% losses…but there may be some players that hold out against this. Surely it only takes one dissenter to confirm publicly that any haircut they are being saddled with is involuntary for the triggers in CDS structures to be activated. Even if all the private sector participants rolled over the fact that they will be offered 30 year Greek paper that will plunge in value immediately is enough to tell anyone that the game is up.

Yes, we know there is a game to be played and at all times the vested parties will seek to be constructive, however, the Euro and the Euro Zone would garner far more respect if it were to be honest and do the following:

1. Accept that Greece is bankrupt.
2. Invite the IMF to openly help Greece manage its default.
3. IMF nurses Greece for several years outside the Euro.
4. ECB provides huge liquidity assistance to impacted banks outside of Greece.
5. Greek banking system consolidates and ECB gives special parachute aid.
6. Either Euro Zone does more to help Portugal, or as is likely it to is cut loose and we do not repeat the Greek fiasco in terms of time and money.

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