1. Market Perspectives – July 2015
Experience Insight Impact
biegelwaller.com
Overview: Over the past five years, Greece, rightly or wrongly, has been a
lightening rod for Eurozone stability. With an economy roughly the size of a
small U.S. state, the actual impact is likely to be far less than the perceived
impact on both the Eurozone as well as the rest of the global economy. While
clearly the humanitarian impacts of a Greek default and Eurozone exit would
be immense within the nation, outside, the actual impact would likely be
small. We expect short‐term volatility due to uncertainty (and some degree of
market fear) to be the primary impact. We would highlight that the current
situation is highly fluid and subject to immediate change (these slides are as
of July 6, 2015).
3. Experience Insight Impact
What Just Happened in Greece?
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• Frustration with the austerity measures led the Greeks to elect Prime Minister Tsipras from the left‐
wing Syriza party. His mandate was to negotiate with European leaders, roll back the austerity
measures and restructure the debt. However, European leaders refused to bend on austerity
measures.
• The loan program from the EU expired June 30, leaving it unable to meet the €1.5bn loan payment
due to the International Monetary Fund that day. As a result, the loan is in arrears and Greece no
longer has access to additional funds (subject to negotiating a new agreement).
• With negotiations at a standstill, Tsipras put forth a referendum for the Greek public to vote in favor of
more assistance (“yes” vote) or to send a message that they believe austerity measures have gone too
far (“no” vote). On Sunday, July 5, the Greek public went to the polls and voted “no,” creating more
uncertainty in Europe. On July 6, perhaps as an olive branch to EU leaders, the Greek Finance Minister
resigned.
• Given the outcome of the referendum, a Eurozone exit appears more likely and Greece may be in for
some difficult financial times, although the impact outside Greece will still be held in check. While
Tsipras and European leaders remain ready to negotiate a new deal, the outcome remains uncertain
and most analysts believe an exit from the Eurozone is the most likely event.
4. Experience Insight Impact
Who Owns the Debt?
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• In 2015, €247 billion of the €317 billion in Greek
debt is owed to the Troika, which consists of IMF
(International Monetary Fund), EU Nations
(European Union), and the ECB (European Central
Bank).
• Losses from a Greek restructuring would probably
be limited for the European financial sector.
• Total debt is only 2% of the European economy.
• In other words, we are not overly concerned about
contagion risk.
6. Experience Insight Impact
What is the Impact of the Referendum Results?
• The Greek people voted NO, and for the time being, indicated they did not wish to accept the current offer of more
assistance in return for additional austerity demands:
• With no access to capital, banks will quickly run out of deposits and Greek citizens will be unable to find
Euros.
• The government will be forced to pay workers with “IOU’s,” and the currency of payment will be unclear. If no
deal is reached with European leaders, it is likely that Greece will eventually convert to the former currency,
the Drachma.
• Banks may be closed for some time and reopen with Drachma as the currency, which would undoubtedly
lead to meaningful devaluation.
• There may be food shortages and long lines for basic services.
• Businesses could struggle to purchase supplies.
• Another, more direct vote on leaving the European Union may be held, which could lead to a currency
transition from the Euro to the Drachma.
• Financial markets may initially react with caution and volatility, fearing contagion to other highly leveraged
nations of the Eurozone (although there are few signs of stress beyond Greece, with most other nations’
credit spreads still trading very well). We expect the near‐term impact to be contained.
• In the near term, a Greek/Eurozone deal for additional liquidity will be aggressively pursued in order to avoid the
aforementioned repercussions. This must be reached in short order if Greece is to avoid full fledged default. It is
worth noting that within Greece, public opinion strongly supports remaining in the Eurozone.
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7. Experience Insight Impact
Where Do We Go From Here?
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The situation remains fluid.
• The European finance ministers are waiting
for a proposal from Tsipras to re‐start
bailout talks.
• The Greek banks will remain closed while
the ECB is evaluating the continuation of an
emergency credit line.
• German Chancellor Angela Merkel and
French President Francois Holland have an
emergency meeting on July 7 with other
Euro‐region leaders.
• We will continue to monitor the situation
very closely.
