Quote from Daal:
I'm considering increasing my EUR shorts significantly
It seems that are 3 main possibilities of how the EU drama plays out
-1. Fiscal transfers to Pigs(flat out giving money or 'value') by cutting rates on existing official loans, extending the maturities or cutting the principal. This seems to be EUR positive as it will enable Greece and others to survive but its highly politically unpopular
-2. Rescheduling/reprofilling. Essentially default by extending maturities or otherwise changing the terms of the debt. Seems to be quite EUR negative as it will trigger all sorts of side effects, counterparty fears, banking fears and probably will shutdown their short-term funding markets. Govs might have to nationalize quite a few banks
-3. Kick the can down the road. Give more official loans and delay the problem
No 3 is not a really a solution because eventually they will have to pick 1 or 2(Though its true that in the mean time you can get squeezed). So it seems that the attractiveness of the EUR short comes down to how likely 1 and 2 are and how much will they affect the EUR in each case. Its hard to see how No1 is politically sustainable for any long period of time, maybe they can do that a little bit for a while but the size and constant need for fiscal transfers might make the option unworkable(Specially as more countries join the soup line)
So it seems likely they will be forced into 2 at some point. Problem is if the EUR refuses to go down on bad news
