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 (scottgrannis.blogspot.ca) 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.
- 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.
- Greece is a very small cog in the global financial markets.
- 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.
- 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 munKNEE.com Vault:
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
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.