Greece is an unmitigated Disaster, but not a threat. It is a wonder that Greece was ever allowed to join the European Union. However, now that they are in, The EU cannot let them out and MUST make them suffer to set a precedent for others. Thankfully, Greece has been well quarantined for some time. Greece is too small to have any big economic influence on the global economy and Greek debt is largely owned by the EU and the IMF so banks are not much at risk of Greek default any more.
Jonathan discusses some of the more pressing topics of current market and economic activity in his annual Halftime Report. Fundamentals have not changed (much) since this presentation was given live to clients in late July 2015. This being said, the volatility that has been missing for over 3 years has finally returned… you can see Jonathan discuss renewed volatility here.
Greece could potentially be a threat to the global economic system in 3 ways:
Economically – but Greece’s economy makes up something like .2% of the European Union. They are the primary source of a few goods that we all like, but those goods are not irreplaceable and if Greeks were to cease buying and selling on the global market… this would be horrible for Greeks, but it would not really effect the global market in any appreciable way.
Financially – 5 years ago, when banks owned the majority of Greek debt, this would have been a problem. But today, because the debt is owned (and can be written off) by the IMF, the EU and the World Bank, it is far less a problem to the European or global banking system.
Politically – This is the problem that Greece presents us. And, this is the reason the European Union MUST apply the austerity measures. If Greece totally defaults, it would be rough on them and they must know that the price they pay will be a heavy one. Because… Italy, Portugal Ireland and Spain are watching and if they think they can get out of their debt (even as things are much better in those countries), they will certainly want to try. And, remembering that politicians are voted in on their popular platforms, it is easy to imagine a candidate running on a platform of “getting out from under the thumb of the EU” – especially if Greece had an easy time of doing so themselves.
You can see 4 other quick takes from Halftime 2015 here: