Want to understand the opportunity here...

Discussion in 'Economics' started by texrex2002, Feb 13, 2009.

  1. Ok big brains, help me think this through please.

    The euro-zone is going through something it's gone through before, but I am not sure how a little retail investor/trader like me can benefit from it.

    Various parts of the euro-zone are having to pay different amounts of interest on their debt, eventhough they have the same currency... Sort of like when the pound was pegged to the D-Mark and Soros cleaned up.

    So Italy and Greece are having to pay more for their Euro denominated debt than Germany. In other words interest rates in Italy and Greece are higher than in Germany, but on the same currency.

    You'd think that every single Euro in Germany would flow to those countries in a huge arbitrage play. For some reason they aren't and I am not sure I understand. Is there worry that Italy or Greece might pull out (or be kicked out) of the monetary union? if so, would the Euro tank, because of fears about the whole union disintegrating, or would it bounce because investors are happy to be rid of those two countries dragging the Euro down?

    I am sure there are varying opinions on this, but I'd be interested to read them.

    How can a small player borrow in Germany and lend in Italy? or in other words sell expensive German bonds and buy cheap Italian bonds (all denominated in the same currency...)

    Thoughts?