The Greece Debt Crisis (some perspective)

The reality is, this is old news. Greece’s financial woes and economic difficulties have persisted since the Global Financial Crisis (7 years ago). Recent events indicate a reasonable probability that Greece will be in default of loan obligations and possibly withdrawal from the Eurozone.

What so far?

• The Greek Government plans to hold a referendum 5 July on the proposed terms of a Euro 7.2 billion-bailout package.
• The package was conditional and the terms rejected by the Greek Government.
• The Government is pushing a ‘No’ vote however public demonstrations indicate they may have misread the consensus.
• The referendum is all very confusing as Greece is voting on an offer that has already been taken off the table by Eurozone Finance Ministers.
• A 1.6 billion euro loan repayment by Greece to the International Monetary Fund, due 30 June, was not met.
• A further 3.5 billion euro is due to the European Central Bank 20 July.

Observations

From a global perspective, Greece in economic terms is small. Greece shipped $35.5 billion US of goods around the world last year. This may sound a lot however it represents just 0.3% of Global Gross Domestic Product. The operating expenses of BHP Billiton in 2014 were larger than this.

The Eurozone is in a far stronger position to contend with the consequences of default than it was 3 – 5 years ago and the exposure of European banks to Greece is much lower. Greece’s citizens will bare much of the fallout.

In the event that Greece exits the Eurozone the general consensus is that there will be limited fallout for the weaker Eurozone nations however monetary unions do fail when there is a loss of confidence that may trigger mass withdrawals from banks.

There is an increased lack of liquidity in some markets as investors stand on the sideline and watch.

What this means for your Strategy

We will experience price volatility however I do not consider that we will have a material impact to investment earnings by way of income. We hold quality assets, strong balance sheets, low gearing and over the last 12 months have taken a more defensive stance, provisioning in cash and fixed interest. Overall we are in pretty good shape to take advantage of any opportunities that price volatility may offer.

Regards Heath