Wednesday , 24 July 2024

Relax! Greek Default NO Threat to EU Financial System – Here’s Why

True, the markets are nervous, but there is virtually no sign that an unpleasant resolution to the Greek crisis presents any threat to financial markets or even the Eurozone economy. Here’s why.

The above edited excerpts (and those paraphrased below) are taken from an article* by Scott Grannis ( originally entitled A Greek default does not rise to the level of a systemic risk which can be read in its entirety, complete with charts, HERE.

Why? Because:

  1. a Greek default has been a long time coming (see 7 links to several articles below) and, as such, is not an earth-shattering event that has come out of the blue.
  2. Greece is a very small cog in the global financial markets.
  3. swap spreads would be much higher – like they were when the PIIGS crisis reached a peak in late 2011 – if a Greek default were a serious threat to the stability of the Eurozone financial system and economy but at current levels in the U.S. and Eurozone they are well within the zone of normality and, as such, are saying that financial markets are liquid, and systemic risk is low.
  4. Finally, the Vix index, (see 2 links to articles on the VIX index below), a barometer of the market’s level of fear, uncertainty and doubt has jumped up from 12 to almost 20 in the past six days – and that’s telling us that markets are worried that something might go wrong – but if this were a really serious worry, the Vix would be a lot higher than it is today.


Putting it all together, while it’s obvious that markets are nervous, it’s comforting that there is virtually no sign that an unpleasant resolution to the Greek crisis presents any threat to financial markets or even the Eurozone economy.


Related Articles from the Vault:

1. Citigroup: 50-75% Liklihood Greece Will Exit the Eurozone Effective January 1, 2013 – Here’s Why

September 23, 2011
For decades, the governments of the western world have been warned that they were getting into way too much debt. For decades, the major banks and the big financial institutions were warned that they were becoming way too leveraged and were taking far too many risks. Well, nobody listened so now we get to watch a global financial nightmare play out in slow motion. Grab some popcorn and get ready. It is going to be quite a show. [Let me explain.] Words: 1075
September 16, 2011If the implications of the current Greek tragedy were not so serious it would have been seen more as a Greek comedy (of fiscal errors). In fact, however, to deploy another metaphor, Greece’s sovereign debt is seen as the proverbial canary in the coal mine – a microcosm of the relentlessly growing sovereign debt that has taken much of Europe by storm and is threatening to spread to the U.S.. Words: 10088. The U.S. and Greece are Frighteningly Similar! Here’s Why

July 10, 2011

The inability [of Congress] to reduce spending and tax its citizenry represents a competitive disadvantage for the U.S.. It is the mark of a country that cannot keep its fiscal house in order, does not care about repaying its debts and, [as such, it] may well be heading for collapse. Words: 978

9. If Greek Financial System Implodes the Rest Of Europe Will Soon Follow

June 19, 2015

The Greek financial system is in the process of totally imploding, and the rest of Europe will soon follow. Why? Because neither the Greeks nor the Germans are willing to give in, and that means: there is very little chance that a debt deal is going to happen by the end of June; we will likely see a major Greek debt default and, potentially, even a Greek exit from the eurozone and, if Greece does leave the euro, we are going to see financial carnage happen all over Europe.

10. Is Using the VIX to “buy the freaking dips” a Good Strategy?

March 16, 2014Since the U.S. stock market still appears to be trying to make up its mind which way things will go from here, this appears to be as good a time as any to expand on the idea of using the VIX to “buy the freaking dips.”11. Investor Fear Gauge: What Everyone Should Know About VIX
August 2, 2011VIX is the ticker symbol for the volatility index that the Chicago Board Options Exchange created to calculate the implied volatility of options on the S&P 500 index for the next 30 calendar days. The formal name of the VIX is the CBOE Volatility Index [and informally as the investor fear guage]. Below is some introductory material on the VIX offered up in a question and answer format: Words: 915