December 8, 2016 3:24 PM

Greece Receives Short-Term Debt Relief and Bitcoin Breaks through $770

If you’re following the headlines, then it’s not tricky to see that even European leaders think Europe is on the brink of collapse!

Greece will receive the short-term debt relief from the Eurozone creditors it desperately need to stay afloat after a meeting of 19 European finance ministers in Brussels on Monday. But, how far will the relief stretch?

The ministers offered to help the cash-poor Greek government, though not each European nation, nor the IMF, was on board.

Greece’s repayments, nevertheless, will be restructured to take place over a longer period of time and an interest rate increase due to take place in 2017 will be waived.

“The Eurogroup decision for the immediate implementation of short-term measures for the adjustment of Greek debt represents a considerable success and another decisive step for the Greek economy toward exiting the crisis,” said Greek Prime Minister Alexis Tsipras, who has overseen strict “economic medicine” implemented in the Mediterranean nation.

Greece is struggling despite its bailout program to stop the country from going bankrupt.

Successive Greek governments have imposed austerity by decreasing spending and increasing taxes. Greek debt remains more than 175 percent of annual GDP as its economy has shrunk by a quarter. Decades of economic growth is needed just to get the debt down to 100 percent of GDP.

Greece, in other words, will need increasing amounts of help from creditors. Long-term assistance, such as a longer repayment timetable for Greek loans, has yet to be offered. Eurozone’s top official, Jeroen Dijsselbloem, said it won’t be offered until at least mid-2018 when Greece’s current bailout program is due to end. In the meantime, the eurozone will brace for the fallout from Brexit, as well, further complicating Greece’s outlook.

Greece’s economic reforms and budget cuts will continue. For six years, Greece has depended on bailout loans to the tune of 300 billion euros from eurozone partners and the International Monetary Fund to avoid bankruptcy.

The IMF has not yet committed to this third bailout for Greece and suggested that forecasts used in the bailout plan are too optimistic. We’d have to agree. Greece is pulling Europe under, and as antagonisms in other regions – such as Brexit – weigh on the Union, it’s almost a matter of time before the fabric rips altogether.

To boot, Germany has dragged its feet, as well, giving an ultimatum to Greece: reform or get out of the Eurozone.

Greece, coupled with the Italy referendum, has created turbulent times in Europe.

A Deutsche Bank executive called Italy’s decision a “harbinger” of doom.  “The result of the constitutional referendum in Italy is a harbinger of renewed turbulence that could spill over from the political arena to the economy – with Europe particular endangered,” he said. The chaos in Europe sent euro to a two year low.

As both Bank of England chief John Carney and former Prime Minister Tony Blair warned, a collapse of Europe’s financial and political orders could be imminent.

When headlines out of Europe portend such crisis, we like to take a look these days at bitcoins, whose speculator-class seem to buy up the coin whenever economic news out of an industrial nation turns sour. We’ve seen this play out due to events in Europe, such as in Greece and Cyprus, in the past.

Experts and media suggest the Greek Debt Crisis, which closed Greek banks in the summer of 2015, increased an awareness of Bitcoin in the country. In June 2015, CNN published an article entitled, “Greeks are rushing to Bitcoin.” During a time in which banks were closed in the island country, the news source claimed Greeks were buying the cryptocurrency.

“Ten times as many Greeks are registering to trade bitcoins on the German marketplace than usual, according to CEO Oliver Flaskaemper,” CNN wrote. “Bitcoin trades from Greece have shot up 79% from their ten-week average on Bitstamp, the world’s third-largest exchange.”

Greeks are turning to bitcoin as a store of value.

Bloomberg echoed a similar sentiment, stating “Greece’s cash crisis is bitcoin’s boost.” This chart from the time of the debt crisis, provided by CoinDesk, outlines the crypto-currency’s reaction:

Bitcoin traded above $255 on June 29, 2015. On June 7, it was priced approximately $223. On greek bank closures, the cryptocurrency reached its three month high, and approached $300 until banks re-opened in mid-July.

From there, Bitcoin essentially continues on its current bull run, taking out $400 and then seeing little resistance en route to its current levels of $770.

Unless news gets better out of Europe, there will be more such charts on the horizon.

Images from Shutterstock. Chart from FinViz.

Last modified: May 21, 2020 10:11 AM

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