Financial Odds: Which Nation Will Drop The Euro First?

Greece and now Spain look to be in some serious trouble.  A total of 3837 people at intrade.com were betting that at least one country will drop the euro currency by year's end as part of its financial odds platform. 

Reuters on Saturday featured an article entitled "Losing Faith in the Euro Zone".

"Whatever ultimately happens in the Greek debt crisis, investors are having to come to grips with an unstable euro zone they had not bargained for," the report states.  "It is the fate of Europe's peripheral economies that still eclipses all else."

Reuters goes on to point out that "markets are in what AXA Investment Managers calls ‘panic mode,' resulting in the European bond market being drained of liquidity and with some investors forced to sell because of sovereign debt downgrades."

With countries like Greece, Spain, Portugal and Ireland unable to manage mountains of debt, the shared currency makes it near impossible to devalue one's self out of trouble.

Reuters asset allocation polls show holdings of euro zone debt at 38.4 percent of bond portfolios at the end of April, compared with more than 42 percent in January.

Some analysts have joked that troubled debt such as Greece's would be a good buy as long as you do not intend to hold on to it until maturity.

"I wouldn't go so far as to say we concur, but the view on the street is that this has been a pretty bad example of how to manage a single currency zone," Jooste said.

"This is the (euro zone's) first real stress test and the system has been exposed in many ways."

In terms of the odds, Greece is likely going to be the first nation to drop the euro and there is a very strong chance this will occur before year's end.

"With no restraints on capital flows within the European Union," Eric Sprott of Sprott Asset Management explains, "Greek savers are free to transfer their assets elsewhere. Given that bank deposit guarantees in Greece are the responsibility of the national government, rather than the European Central Bank, we suspect Greek citizens are pulling money out of their banks because they question their government's ability to honor its domestic deposit guarantees.

"We envision Greek depositors asking themselves how a government that can't raise enough money to stay solvent can then turn around and guarantee their bank deposits? It's a fair question to ask.

"It's a vicious spiral from financial crisis to sovereign debt crisis to banking crisis, and there is no reason it can't spread to other European countries suffering from similar fiscal imbalances. With Spain and Portugal next in line with their own sovereign debt issues, we can expect depositors in these countries to make similar runs to the bank for their cash."

Alejandro Botticelli, Gambling911.com