Is the euro destined to break apart?
That was a question for Fast Money Traders Monday morning as the euro sank against a broad basket of currencies after news of a new downgrade to Greece’s debt rating by Standard & Poor’s rating agency. The downgrade came one business day after Greece and Euro zone officials denied a German newspaper report that Greece was considering leaving the Euro-zone.
Standard & Poor’s cited the likelihood of extensions to Greece’s debt repayment as the reason for the cut to ‘B/C’ from ‘BB-/B’ on Monday.
“The downgrade reflects our view of increasing sentiment among Greece’s key Euro-Zone official creditors to extend the debt payment maturities of 80 billion of bi-laterial loans pooled by the European Commission,” wrote Standard & Poor’s analyst Mark Mrsnik in a note explaining the downgrade.
The cut to Greece's debt rating was not surprising. Greece’s debt is more than 140% of GDP and many economists expect that ratio will rise as Greece’s economy contracts again this year, for the third straight year. As a result, most investors have long believed Greece cannot repay the three-year 110 billion euro loan package it received last May without significant extensions or strategic default.
“I think Greece is the slowest train wreck in history,” said Tim Seymour of EmergingMoney.com. “The Greece downgrade is no big surprise on the headline.”
What traders were likely reacting to Monday were renewed fears the Euro would weaken significantly if Portugal and Ireland receive debt extensions similar to whatever Greece may negotiate.
Fast Money Contributor Dennis Gartman, author and publisher of The Gartman Letter, doubted that the euro zone can afford to allow Portugal, Ireland and Greece to all restructure their bailout packages. On Monday, he echoed his earlier call for the euro to break apart into a Northern euro and southern currencies.
“The Portuguese and Irish have already said that they want to renegotiate,” said Gartman. “Germany cannot handle everyone renegotiating. The Euro has to break into a northern and southern currency, and this just brought it one step closer."
Gartman plans to outline his case for the Euro to break apart on tonight's Fast Money at 5PM.
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