The Greek hokey cokey
03 July, 2015
You put your left leg in, you put your left leg out. You put your left leg in, and you shake it all about.
And once again we are talking about the interminable saga that is the Greek hokey cokey. There's been a lot of putting in, putting out and shaking all about. Okay, maybe not arms and legs, but we've had demands, opinions, reprieves and 11th hour compromises, and so the Greek dance goes on and will do for a while yet.
You may not have been monitoring the Greece situation. You're not alone - the term "Gratigue" has been coined to describe a "fatigue of all things Greek".
A quick update: Greece was due to make a €1.6 billion payment to the International Monetary Fund (IMF) on 30 June, as part of a bailout package agreed back in 2009, and renegotiated several times since. It also owes the European Central Bank (ECB) €3.5 billion by July 20. Greece has asked for some debt relief, but their European creditors don't want to let them off the hook unless the Greek Prime Minister Alexis Tsipras shows a willingness to undertake significant reform or spending cuts. Unfortunately Tsipras was elected on the basis that he wouldn't force his countrymen into years of austerity. Hence yet another stalemate.
Missing the IMF payment is probably more a reputational issue than an economic one. The IMF is not exactly hanging out for Greece's payments to pay its bills. Similarly in the case of the ECB, a default isn't going to cause economic ruin for the rest of Europe; it just makes a mockery of the political and economic union that is supposed to exist between the European nations.
Because markets have traversed this territory before, and had an inkling that negotiations were going to be tough and deadlines might well be missed, investors are currently concerned as opposed to panicking over these latest stalled talks. As one commentator noted - different parties are impacted this time around, so the response can be different. The lenders that Greece defaulted on in 2012 (when their debt was restructured, forcing lenders to accept 70 cents in the dollar) were bondholders. These people took a risk lending to Greece and they lost money.
The lenders to Greece now are mainly political institutions, parties that have lent money to Greece for largely political reasons. Also, we need to keep perspective around the amounts of money involved.
Greece has around US$350 billion in debt. This is roughly the amount of money that the US government borrows every seven months! The total US national debt is around 50 times the amount that Greece owes. It's just that the US gets to call the shots because it is the US, whereas Greece doesn't because its economy is around 0.3% of world GDP (or as one commentator noted "somewhere between Alabama and Louisiana in terms of might").
What we do know is that the Greek hokey cokey will not end this week, or next month. Whether the referendum called by Tsipras sees the Greeks choose to stay in the EU and accept a compromise, or leave the EU and go it alone, the outcome will be similar. A hard and difficult road lies ahead for Greece, and the rest of Europe will be buffeted, politically and to a lesser extent, economically. It will provide media fodder for months ahead, and some of it will be gripping (we've already read of hurt feelings as documents were marked up with "offensive red lines", prompting outraged Twitter comments from the Greek PM!).
Meanwhile life will go on, markets will endure another bout of volatility, international trade will continue, currencies will bounce and our team will continue to scour the world for opportunities to preserve and grow our clients' wealth. If markets become really volatile, there may well be opportunities to buy well-priced assets as babies get thrown out with the bathwater. Given the relatively strong markets we've enjoyed in recent years, there haven't been many such buying opportunities, so fingers crossed that some emerge from the shakeout.
That's what it's all about!
PS. Just for the record, we have no exposure to Greek shares or bonds.