Yesterday (5-15-12) I had the opportunity through a CFA related event to visit with, and listen to Simon Derrick, chief strategist of Bank of New York and London resident. Simon had one of the most vivid explanations of actually how Greece may default, as such I wanted to share it with you.
In actuality, it may be a smoother transition that many thought. These are possibilities, not guarantees, but the best I have personally heard so far.
On a Friday after most market participants have headed home, sometime after the next Greek election which occurs on June 17th 2012, according to Simon, Germany could announce there is nothing they can do for Greece, but they will attempt to help the other countries as much as possible. This would set into motion a Greek announcement that their country will have a two-week bank holiday in order to keep from having a run on the bank.
During the bank holiday the printers start churning, and a new currency is born. This currency is then disseminated throughout the country for use and the Euro currency is sent packing.
A second less immediate thought, but very important item is the approval of new Passports for travel between the neighboring countries. (This is interesting and speaks to the tourist and travel related importance for Greece.)
Capital markets will certainly do what they do with rates and currencies, most likely devaluing the newly minted currency. While no one knows the exact amount, 20-30% would be reasonable and could even be higher.
Here is where it gets interesting, after the dust settles, and some type of stabilization occurs (assuming it does), Greece, a tourist centric country, is sure to throw out extremely great travel deals to kick-start their newly formed country. Since their currency will most likely be valued so low, they will have a very strong advantage over their former connected countries in attracting tourists.
Maybe we will all be taking Greek vacations soon, only time will tell.
Here is a recent Bloomberg interview with Simon talking in greater details about currency and mentioning rates, which we will be speaking about soon.
Have a Great Day!