With the negotiations to have Greece secure more funds to prevent a default all looking unpromising, most of the focus now shifts to the effects of a “Grexit” around Europe. Many people can bet that investor confidence in other European economies will take a beating but again, it always remains difficult to give any assurance about that. Value investors can expect German’s stock exchanges to perform poorly because many stock investment decisions are usually based on fundamentals and sentiment. It would not be unusual for people to sell off some stocks and opt for safe haven investment options instead.
How prepared can Germany be?
One of the initial outcomes of a Grexit to the German bourse may involve an initially muted response but the damage will be more pronounced in the long run. It is a trickier situation for Germany because there is even more urgent need to have contingency plans about Greece but still have plans that will ensure the economic growth meets or surpasses the usual targets. Whatever Germany decides to do, the country needs to fix its public finances. Many credit partners are cautious about helping with the Greece debt burden because they may end up piling debt within their own economies.
Most Eurozone capital markets will be at risk (not only Germany)
In the long-term, Eurozone countries can expect risk exposure to build because there is a high chance that the countries will need to increase their interest rates in tandem with those of Germany. Changing interest rates is known to reflect directly on the capital and bonds market. The bigger problem remains the country that will follow suit if Greece leaves the Eurozone. Portugal and Italy have all recently also experienced rising debt levels with very few fixes suggested. The turmoil in Greece can perhaps be looked at as part of the reason why many other countries are flirting with the idea of Quantitative Easing in Europe, just to remain covered in case of the worst.
Why stock prices will retreat on a default or Grexit ?
Senior broker Mr. Mitchell Emerson from Swiss royal Banc said-
“Early in 2015, when most of the negotiations hit a dead-end, most global investors started focusing their funds towards safe-haven assets. This made sure that the US dollar and most U.S treasury prices started rising marginally compared to the other European counterparts. Global equity markets started to shrink as the dollar and the US treasuries gained. In recent months however, there has been a subdued mood towards the Greek crisis. Some experts have started suggesting that the uncertainty in Greece has already been priced into the stock and currencies market since the first bailout (pre 2012). “
On the brighter side, the optimists feel that Europe has very little private sector exposure to the Greek woes. The IMF and other credit partners are more likely to feel the debt burden if Greece is given funds but private creditors are likely to go unharmed. Most of the uncertainty in Greece has so far been “hedged out” by betting on short-term gains. UK exporters (although few) are likely to look for newer markets to sell their goods if it finally means keeping Greece out of the picture.
Germany needs to continue lobbying the Eurozone lenders to provide more funds
Germany can directly vouch for Greece to have its creditors give the country better demands. The demands are too outrageous according to German and Greek experts. Slimming down the demands made by the EU negotiators will make it easier for Greece to reach a good deal in good time. This will prevent a Grexit and still leave Greece enough room to pay up the lenders in coming financial years. The worsening financial debt impasse can be fixed and that could save the global economy from a near catastrophe.
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About Swiss Royal Banc
Swiss Royal Banc is a global financial institution and online trading brokerage that is changing the landscape of trading. At Swiss Royal Banc, also known as SRB, we are dedicated to providing our clients with the best trading platform, tools, education, and service to succeed in the markets. As such, Swiss Royal Banc invests in our clients as much as they invest with Swiss Royal Banc.
Mr. Mitchell Emerson- +16475607555 ext 109