Tuesday, June 28, 2011

Contingency Plan if Greece rejects austerity


Ok here's the news report on EU having a plan 'B' before the vote tonight

From a game theorist and market psychology perspective, a possible reason why EURO officials would offer this statement in advance is that they are putting a high weighting on a rejection from the Greeks regarding the austerity measures.

This is the equivalent of a earnings warning from a company from a weak performing product line before it's actual earnings release- it seems immaterial, but market sentiment may punish the whole company with a sell-off in the mean time. This is a way of tempering negative expectations if they happen to form in reaction to any rejection of the plans.

The market is trading a touch below 1.43 and the trading range will likely hold between 1.41 and 1.43 until the vote is in. My bet is that greece will come in with a counter offer or ask for more time - delaying the inevitable.