Greece Ensures That This Will Not Be a Boring Summer for Forex Traders

On Tuesday, an emergency meeting of euro finance chiefs failed to produce a plan for a privately financed Greek bailout, Bloomberg reported.

Over the past several weeks, European politicians—particularly French President Nicolas Sarkozy and German Chancellor Angela Merkel—have been indicating that a new bailout package would ensure that Greece did not have to default on its debt repayments.

A portion of the bailout package was to be funded by the private sector.

With the inability of the finance ministers to reach a deal on a private bailout, it seems increasingly likely that Greece will face some form of debt restructuring or outright default.

On Wednesday, riots intensified in Athens and Prime Minister George Papandreou indicated that he would be willing to step down if a unified government (one that included Greece's major opposition party) could be formed.

The EUR/USD pair traded sharply lower on Wednesday, down roughly 1.7% on the session.

If Greece cannot be properly financed, it may spell doom for the euro currency. A partial default or debt restructuring would send major reverberations through the entire European financial system, as Greek bonds are spread among various banks in different member states.

Greece could always abandon the euro and return to the drachma. Economic commentators have been speculating that Greece would eventually do just that.

However, that may set a dangerous precedent. If abandoning the euro is seen as a viable option, other debt-stradled nations like Ireland and Portugal may follow suit.

Of course, it remains possible that a solution is found. Some economic actors in the center of the Euro Zone may have much to lose if the euro breaks apart.

Germany, for example, might see its currency appreciate significantly if the euro was to fold. That may be terrible for the export-led German economy.

At any rate, the developments in Europe should ensure that this summer is far from boring, especially for forex traders.