athens-acropolis-ladiesA Greek Exit from the EU, a “Grexit,” is Back in the News… again!

Not quite as popular as Branjelina and Kimye, ‘Grexit’ (short for Greek Exit) has gained traction as a nickname during the past few months. The British press appropriated a variation, Brexit, when they discovered that the Bank of England was researching the potential risks of renegotiating membership in the European Union, or possibly even leaving the group—but that’s another story.

This is about Greece, and it’s a Grexhausting tale. Last week, The Economist explained the state of affairs this way,

“…euro-zone finance ministers failed for the third time in four days [on June 25] to find a breakthrough in their talks over Greece’s bail-out…But four days before its twice-extended bail-out expires and a €1.5 billion ($1.7 billion) payment to the [International Monetary Fund] IMF falls due, Greece and its far-left prime minister, Alexis Tsipras… still have no deal.”

By Saturday, a deal was off the table. After days of negotiations, CNN Money stated, “Prime Minister Alexis Tsipras…could not accept the terms being offered by Europe and the IMF. He said he would recommend that Greeks vote against them in a referendum on July 5.” The move was perceived to be a delaying tactic and, when Greece requested bailout extension, European finance ministers refused.

Greece owes about 1.5 billion euros to the IMF, and a payment is due on Tuesday. In the meantime, the European Central Bank (ECB) has been providing emergency funding—a line of credit currently worth about $95 billion—to keep Greek banks from collapse.

It’s unclear whether Greece will be able to make the payment due to the IMF this week. If it does not, Bloomberg Business reported the country is at risk of joining a rather disreputable club: countries that have failed to repay the IMF on time. Current membership includes Sudan, Somalia, Zimbabwe, Cuba, Cambodia, and Honduras.

CNN Money explained that Greeks are queuing at ATMs, banks are strapped for cash, and the European Central Bank may decide to curtail emergency funding. On Sunday, in an attempt to manage the financial fallout, Greece decided to keep its banks closed on Monday and close the Athens stock exchange.

One expert cited by the International Business Times suggested that a Greek default could make international credit markets unavailable to the country for many years. In addition, Greece may experience rapidly accelerating inflation and economic decline.

If the economic effects of default prove less dire than anticipated, other debt-strapped Eurozone countries such as Italy, Spain, and Portugal, may decide to follow suit. The possibility has many worried about the future of the Euro.

There is a good chance markets will be volatile this week as events play out.


Data as of 6/26/15

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.4%

2.1%

7.4%

16.8%

14.4%

5.8%

Dow Jones Global ex-U.S.

0.7

5.6

-4.0

9.8

5.3

3.4

10-year Treasury Note (Yield Only)

2.5

NA

2.5

1.6

3.0

3.9

Gold (per ounce)

-2.7

-2.4

-10.8

-9.4

-1.5

10.3

Bloomberg Commodity Index

1.3

-3.1

-25.8

-8.3

-4.6

-4.4

DJ Equity All REIT Total Return Index

-2.5

-4.2

6.1

10.9

13.4

7.3

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* “Grexit”

Sources:

[1] http://www.bloomberg.com/news/articles/2015-05-22/boe-reveals-staff-working-on-risks-surrounding-possible-brexit

[2] http://www.economist.com/news/europe/21656331-greece-and-its-creditors-are-halfway-reaching-deal-it-sometimes-seems-they-always-will-be

[3] http://money.cnn.com/2015/06/26/news/economy/greece-europe-bailout-referendum/

[4] http://www.npr.org/sections/thetwo-way/2015/06/28/418276486/greece-tries-to-stanch-bank-run-ahead-of-looming-default

[5] http://www.bloomberg.com/news/articles/2015-06-01/will-greece-join-these-deadbeats-that-missed-debt-payments-to-the-imf-

[6] http://www.ibtimes.com/what-happens-if-greece-defaults-imf-ecb-leaves-eurozone-1972135

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