Despite Germany and others appearing to be relaxed about a potential Greek exit from the euro, a ‘Grexit’ could have significant repercussions for investors, warns a leading global investment analyst.
Tom Elliott, International Investment Strategist at deVere Group, one of the world’s largest independent financial advisory organisations, comments ahead of Monday’s crisis meeting of eurozone finance ministers which is Greece’s last chance to present its case before possibly finding itself abandoned at month end.
Mr Elliott observes: “Investors should be watching very carefully what happens at this ‘last chance’ meeting.
“Although Angela Merkel et al are seemingly taking the position that a euro without Greece would be manageable, investors should not be so relaxed.
“A breakaway from the eurozone could be expected to have a major impact on growth and capital markets in other regional economies, including France.
“Grexit is an unlikely outcome of Monday’s talks, but it may happen.
deVere Group’s International Investment Strategist explains how a eurozone without Greece could affect investors’ wealth : “It is unlikely that many private investors hold Greek bonds or equities.
“However, a Grexit would impact investors because of its likely severe destabilising effect on the euro project and on the region’s capital markets.
“This is because once Greece has left the euro it becomes clear that the single currency has an exit door for members. That eurozone membership is conditional on good behaviour. This damages the dream of the euro’s founders, of the single currency as a path to the ‘ever closer union’ of European nations and, less prosaically, will lead to higher government bond yields amongst weaker members.
“This will raise the cost of borrowing, leading to tighter fiscal policies as debt interest bills rise, and to slower economic growth.
“Since most financial assets have a direct or indirect relationship to the government bond yield of the country, we can expect stock markets in Italy, Spain and other peripheral economies to fall as the exit premium for those countries is priced in and as growth prospects weaken.”
Mr Elliott concludes: “Monday’s meeting is the Greek government’s final opportunity to negotiate itself a bridging loan or return to the existing – and hated – bailout program. It’s the last chance for Greece on this issue and investors will be waiting with baited breath.”