Tuesday, June 16 2015
There was an interesting article by Alan Kohler on the possibility of a Greek exit (Grexit) from the European Union (EU) in today’s Australian newspaper (please note, this is a subscriber-only article).
Essentially the article suggests an exit is more likely because the sides have not managed to close the gap in expectations. The Germans will struggle selling a deal which gives away more cash with no sign of greater fiscal discipline. The Greeks have promised they will not cut pensions or undergo the required fiscal tightening. Perhaps it is better for the EU to let the Greeks go.
For the Greeks an exit would cause substantial hardship including a recession, loss of wealth and unemployment. It would cause severe austerity given that they would no longer have access to financial markets to prop up their budget. However the substantial devaluing of their (new) currency and fall in wages would improve their competitiveness and they would likely begin a recovery (albeit from a low base).
Europe is better placed to withstand the fallout thanks to the quantitative easing being undertaken and it would strengthen the overall union.
Markets have been weak in anticipation and there could be further volatility on the initial announcement but once the Band-Aid has been ripped off, the uncertainty removed a recovery would ensue.
Having said the above we still suspect the can will be kicked further down the road with the Greeks and the Europeans making a few compromises to avoid the uncertainty an exit would represent.
|This document has been prepared by Dalton Nicol Reid Ltd, AFS Representative - 294844 of DNR AFSL Pty Ltd ABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst Dalton Nicol Reid has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and recipients must make their own enquiries concerning the accuracy of the information within. The general information in this document has been prepared without reference to any recipients objectives, financial situation or needs. Before making any financial investment decisions we recommend recipients obtain legal and taxation advice appropriate to their particular needs. Investment in a Dalton Nicol Reid individually managed account can only be made on completion of all the required documentation.|