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Window to Keep Greece in Euro Closing

Greece's exit from the euro is not a done deal, but the chances of it staying in the common currency are getting slimmer by the day.


There has been no shortage of bad signs in the market this week. The Morningstar U.S. Index dropped about 5% to the lowest level in four months. Investors seeking safety rushed into Treasury bonds, sending yields to near-record-low levels. And it isn't concern over  Facebook's (FB) ability to monetize mobile users that is sending global investors to safe havens. It's Greece and the worry that a forced exit from the eurozone would have on the rest of Europe. This fear isn't misplaced. There is a very real chance that Greece will need to leave the eurozone, sending further ripples from Greece and upsetting the global financial pot.

Why Now?
Greece's economy hasn't suddenly become weaker during the last few weeks; it's been in a deep recession for years. The key problem is political. In order to keep the aid from the rest of Europe flowing, Greece needs a government that is credibly able to agree to the austerity measures that Germany and the European Central bank are demanding. But it doesn't seem that a stable government is going to appear anytime soon. Elections from a couple of weeks ago were inconclusive and followed the recent European trend of rejecting incumbents and, more broadly, austerity. A fresh Greek vote is scheduled for June, and no one knows who (if anyone) will emerge with the power to form a governing coalition in parliament.

Bearemy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.