Monday 23 May 2011

Greece and Financial Crisis 2.0

2008 seems like a long time ago. That Summer the world sleepwalked into the Financial Crisis that culminated in Lehmans going bust and the world entering something akin to a depression.

Now, that was said to be a once in 60 years type catastrophe.

However, the solution was to print some easy money, reduce interest rates and shift much of the debt problem onto Sovereign balance sheets rather than private.

the price of this has been higher taxes, sclerotic growth in the West and the potential for a new crisis.

All year, the Greek bailout/restructure/default has been discussed. Those in the Euro will not countenance it despite it being economically the only viable solution.

Now we are at a point where this is not being ignored any more by the markets. The FTSE is down year to date, risk stocks in AIM and other areas are off 30-40%. Even the commodity bull run is rapidly shuddering to a halt.

The key question left is that can a small, broke country like Greece really be responsible for another 2008 style crash. over this summer will we see a build to another big market and economic crash? It is very hard to tell but by my reading the line is finely balanced at the moment. Clearly big players are taking money off the table in anticipation of volatility. However they did this in 2009 too and promptly missed a huge QE inspired rally - the market movers are not always right.

Perhaps there is a chance that a Greek crisis ( with Portugal and Ireland to follow) is already priced in? Only hindsight will tell us, but there is not much else to worry about from a macro economic view this next few months.


appointmetotheboard said...

These are interesting times. Maybe the market will adopt something of a watching brief over the summer. Aren't trade volumes historically down over this period anyway?

Don't forget that as well as Greece, there's the US debt ceiling issue to be resolved. One thing that does look certain though - there will be no more QE.

Anonymous said...

It's not just Greece, it's Ireland and Portugal...

And whne they go the European banks are screwed - or they pass it to the taxpayers and the governments are screwed...

Either way it's going to get messy - there's going to be substantial haircuts all round.

Bill Quango MP said...

Wolfgang Schäuble, Germany’s current Minister of Finance commented at the recent Munich Security Conference: “The deeper the crisis, the better the chance for getting solutions!”

hovis said...

Oh and dont forget Spain to start wobbling soon - with the addition of all that lovely unreported municipal debt that Alphaville have been highlighting and likely political sclerosis..

Budgie said...

BQ said: "Schäuble said: “The deeper the crisis, the better the chance for getting solutions!”"

Yes - EU financial solutions operated by Germany.