Several times over the last few weeks, Greece or its creditors have made decisions/announcements that have caused volatility in the markets. As the Greece financial crisis wears on, it will cause more uncertainty with investors selling positions based on emotion, not logic, and having knee-jerk reactions, rather than exercising patience. But remember, typically, the markets overreact and then recover. For example, on one recent trading day, the US markets had basically shrugged off the latest drama surrounding the Greece financial crisis by market close.
What Happens If Greece Defaults?
If Greece eventually defaults, goes bankrupt and leaves the Eurozone, Germany and France will be the ones bearing the greatest financial burden. Market uncertainty could shift from one country to another. However, they will not be crippled as economic entities.
What About Other European Countries?
The greater concern with the Greece financial crisis is the potential domino effect. If Greece goes, will Ireland, Portugal and Spain be next? If Spain goes, that could be very serious, as they are a driving force within Europe. However, Spain has been making a concerted effort (unlike Greece) to shore up their economy and financial institutions, so in all likelihood they will remain a member of the Eurozone.
Only time will tell how the Greece financial crisis will play out. For our client’s models, we have reduced our exposure to Greece and Europe for the time being, to mitigate any downside risk.