Could Markets React Positively to Grexit? 7 Reasons Why They Could
Stock-Markets / Financial Markets 2015 Jul 13, 2015 - 12:44 PM GMT
Politicians, investors and the general public are absolutely fed up with news about Greece. Over the last 2 weeks, the unthinkable possibility of Greece leaving the Euro started to materialize. And the stock market reacted quite well.
A Eurozone made up of 18 countries is quickly being seen as the new normal. And more than that, a desirable new normal.
Here are the main 7 reasons why Grexit could actually be welcomed by the financial markets:
1. Economically speaking, Greece counts very little in the Eurozone. The direct economic impact of Greece leaving the Euro or even the EU is absolutely marginal.
2. Private investors and world institutions know for a long time that Greece is broke. This possibility was therefore anticipated and doesn´t come as a shock to anyone.
3. The stock market is forward looking. The Greek ordeal is yesterday´s news to investors. Big money is more concerned with the next big tech leap or the possibility of a financial crash in China. Greece is just a distraction.
4. Any amount of billions that the EU refuses to give Greece thus forcing Grexit, will for sure get a better return if used within the lending nations. Considering that Germany will/would be the biggest lender to Greece in a new bailout, the markets may prefer that Germany keeps those billions to itself, and use them in a much more productive manner.
5. No team benefits from having an unwilling/incapable player. Grexit means Team Europe will lose its “black sheep”. Instead of weakening the Euro, Grexit may actually boost the single European currency.
6. The political risk of saving Greece: most analysts and journalists fill up airtime warning about the political risks of letting Greece go into chaos. But the political risk of saving Greece is far greater.
Portugal and Spain are months away from electing new governments. The two Iberian countries are not Greece, but it wouldn´t take that much to put them in the Greek predicament. Portugal has been under emergency financial assistance for the last 4 years and Spanish banks are also being backed by Europe.
The austerity measures applied in Portugal and Spain made lots of people angry. In Spain, there is a real possibility of a new far-left party called “Podemos” – the Spanish version of Syriza – being voted into power. Saving Greece could encourage Spanish voters to vote A la Grecca.
The risk of Spain becoming Greece is the real big threat to Europe. Europe can live with Greece in its ranks, but not without Spain. And by “Spain”, we main Spain, Italy, Portugal, Cyprus, Malta and everyone else below the latitude of Germany.
7. A new Greek bailout can easily be rejected by one or more national parliaments within the European Union. Politicians are interested, above all, in keeping their position and protecting those around them.
For a Finnish politician, supporting a 3rd Greek bailout could mean losing the next election. Politicians in Finland or any other country, are there to support the interests of their voters and nationals, not the interests of people in Greece. Unless Greece accepts total capitulation before its creditors, chances are that a new bailout will be blocked by one or more national parliaments called upon to ratify additional funds to Greece.
Big Money obviously knows this, so Grexit must be already priced in, at least parcially.
Conclusion
Most people are afraid of the unknown. Seeing a country leave a monetary union that was supposed to be “forever”, scares a lot of people. But right now, the prospects of keeping Greece inside the Euro are far more terrible for Europe.
If “Podemos” wins in Spain, the European Union may indeed be over very soon. Europe´s response to Greece, is most of all a message to Spain: “Behave muchachos!”
These being unchartered waters, nobody knows exactly how the markets will react. Our forecast is that after some initial turbulence, Greece will be forgotten and the markets will just move on. Isn´t that what the markets always do? That´s the Atlantic Perspective.
Copyright © 2015 by The Atlantic Perspective.
The Atlantic Perspective is an opinion blog, aimed at explaining and providing solutions to some of the world´s most relevant issues.
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