Continued Fears Over Greek Default

The European and Global Markets dipped last week over the growing prospect of a disorderly Greek default. The prospect of Greece’s exit from the Euro is now being openly discussed and savers are continuing to withdraw their cash from the stricken country. The growing uncertainty over the Eurozone has led to the significant increase in the value of the Pound against the Euro up to 1.25. 

Leaders of the G8 summit met last week to discuss the Greek crisis and are now beginning to place greater emphasis on growth rather than merely focussing on austerity. Quite simply, there will be no prospect of a Greece repaying its debts unless measures are put in place to stimulate growth. The fact that it has taken this long for the EU leaders to recognise this is concerning to say the least. This adds to the poor record of the EU policymakers in handling the Euro crisis and sends a negative signal to the market. 

The widespread panic over the Eurozone suggests it is too little too late to save Greece as the rest of the Eurozone have lost patience with the nation’s ability to meet its austerity targets. It would be sensible to start planning for a return to the Drachma which will enable the Greeks to lower price and increase competitiveness. The ramifications for the rest of Europe are unclear. A disorderly default could result in the collapse of the banking system. The gold price has slumped and the Euro has weakened for the time being. The markets are also putting upward pressure on bond yields which will have a negative effect on Spain and Italy which are struggling to finance their debt.