UK traders consider the consequences of a possible ‘Grexit’ on the European markets.
LONDON, ENGLAND, UK (JULY 1, 2015) (REUTERS) – European shares and euro zone bonds rose on Wednesday (July 1) as investors kept faith that, despite defaulting on its debt on Tuesday (June 30), Greece will find a way to stay inside the currency zone.
The default came as no surprise to European financial markets, which remained strikingly calm.
The lack of panic or contagion to other euro markets stood in marked contrast to 2011, when the Greek crisis was perceived as a threat to the future of the single currency.
Euro zone central bank chiefs will meet to consider an emergency funding it is providing to Greek banks following the missed payment to the IMF.
With the feeling that the ECB would not want to deliver the fatal blow to Greece and investors still harbouring hopes of a deal at some stage, Italy, Spain, Portugal and Ireland — the other high-debt countries that were in the crosshairs of the euro zone crisis a few years ago — saw their bonds hold firm.
Greece is due to hold a referendum on the terms of a bailout on Sunday (July 5), which will see the country vote on whether or not it wants to accept the cash-for-reforms deal.
One market strategist said the markets were concerned about the outcome of the vote.
“If they vote ‘no’ and the markets open in turmoil again, how is Europe going to resolve the situation? How are they going to help Greece restructure and organise an orderly exit from the euro,” said Bill Blain, a market strategist at MINT Partners, a UK-based company that provides wholesale brokerage services and trading support.
“And markets, I think, are deeply concerned that this could get very, very messy. So the kind of ructions that we’ve seen this week may presage something worse next week,” he added.
Blain said that the crisis will be profoundly damaging, but argued it could be spun into a “massive opportunity” by global investors.
“If we get a new Greece with its own currency but remaining within Europe, which would be the best possible solution, we feel, then you may see the Greek economy expand dramatically and marvellous upside in the Greek stock markets,” he said.
“If we get a messy result where we get Grexit, default, constant recrimination between Europe and Greece, then the prospects look much weaker,” he added.
One analyst said the default by Greece did not come as a surprise.
“It was more of a surprise that we did see a new proposal come from Greece late yesterday, and will be discussed by finance ministers today, which essentially says they will accept most of the things that are on the table over the weekend negotiations,” said Simon Smith, chief economist at FxPro, a UK-headquartered online broker.
“But they still want, from what I gather, some debt restructuring and that remains a sticking point, so even after these months of negotiations, Greece still thinks: ‘look, we have too much debt; we just need to write some of it down and then we’ll be able to grow’.”
“The ECB, the EU, the IMF still think: ‘no, we’re not writing down any more debt; you still have to do the hard work’,” he added.
Greek Prime Minister Alexis Tsipras told international creditors on Wednesday that Greece could accept their bailout offer if some conditions were changed.
In exchange for the conditional acceptance, he asked for a 29 billion-euro-loan to cover all its debt service payments due in the next two years.