Folks,

I have benn writing to you for some time that this Greek and Euro crisis is blown completely out of proportion. The obsession that the US (and by default the world) has with Greece is outrageous at best.

Let's put things in perspective:

We have all heard that the fear we have is that the problem is not just Greece, but alos Portugal, Spain, Italy and Ireland. But that is not quite true - Greece is unique among the Euro-zone countries in having both a very large debt to GDP ratio and a very large current public deficit. The other countries are not quite as bad as Greece.

Let'd dig a little deeper on one of the suspects: Spain - The problem that we in the US point out to is the debt to GDP ratio that Spain has and that it has tremendous amount of Non Performing Loans that are hiding true losses on Spanish Bank balance sheets. Once agin, not true - The current NPL ratio in Spain is about 5.4%. Let's say that the rate was to go up and go as high as 10%. And let's assume that the recovery rate is 50%. If that was to happen, losses would be €90-100 bn, roughly equal to 10% of Spanish GDP. And if the Spanish Govt rescued the banks by backstopping losses, we would yet see the Spanish debt to GDP ratio below that of Germany by 2011 as per OECD forecasts.

Let's focus back on Greece, the problem child. It has been estimated (by sources I trust) that European banks hold approximately about €63 bn out of €290 bn outstanding Greek government bonds. This level of debt going into default will not cause a run on European Banks and create a Euro liqudity crisis. If we consider the problem back state side, total losses on US financial assets from the crisis, should it collapse will be around US$2 trillion. That will create a massive run on the banks here and will create a US Dollar crisis.

Finally, as per OECD projections, Spain, Portugal, Ireland and the UK would all have a lower debt to GDP ratio than the US in 2011.

Now you decide who will have a problem from now to 2011 and beyond - US or Europe

I would be going long Euro as long as I have a long term perspective on currency investing.

Ashish Advani