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Tuesday, 7 July 2015

Greece says: “NO”!

(Image by By fronas.g via Flickr)
The Greek referendum results could not have been clearer and louder. Greeks are fed up of years of poverty and broken promises, the latter mostly from local politicians. What could happen in the financial markets now?

Mr. Tsipras, what is the plan?

Greeks are not interested in the European plan for debt restructuring, and they believe the political agenda of Mr. Tsipras will take them out of the slums. 

Nonetheless, they need more money, for the country is virtually bankrupt and cannot pay even the most basic services. As a result, Greece is still relying on the international community for help—more money in exchange for more promises.

In fact, repaying the debt is not the main issue. How will Greece be able to function as a normal state again without external help? If we consider history, the current far left government will not be able to jump-start the economy to create wealth and jobs for Greeks. Communism is a utopia that does not work in reality. So, there will be more broken promises, and imaginary enemies will be blamed for future failures.  

Short-term volatility could increase

The truth is that a Greek exit from the Eurozone, despite the very sad ending, will be damaging for the country itself, but it should touch only marginally the other European states. Private investments in Greece are very limited. Exports to Greece represent only 0.5% of the total European exports. Weaker European nations, such as Italy, Spain, and Portugal, have improved their economy since 2011, and the contagion should be limited this time. Finally, if needed, the European Central Bank (ECB) is ready to step in with other measures, such as Outright Monetary Transactions, which means buying government bonds on the exchange for a country to implement economic corrections. For now, the ECB is still providing Greek banks with the benefits of the emergency liquidity assistance and should support the local banks over the short term as well. It is clear, however, that this free fall of money cannot last forever. 

Greece will soon face another important deadline.  On July 20, it should repay €3.5 billion in Greek bonds. Will it be able to do so? Over the short term, financial markets should remain under pressure, considering economic incertitude elsewhere (e.g., China). Stocks could correct, bonds might increase, and the US dollar could keep the safe-haven status

Angelo Airaghi,

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