Greece’s Debt Crisis Sends Stocks Falling Around Globe

29 Jun 2015 | Author: | No comments yet »

No Greek tragedy for Australia.

The fact that both countries are part of global debt and equity markets means that we get caught up in the contagion effect to some degree – hence local shares fell on Monday by more than 2 per cent as a generalised hysteria hit most stock markets. Anxious Greek pensioners swarmed closed bank branches Monday in the hope of getting their pensions, while queues formed at ATMs as they gradually began dispensing cash again following the imposition of strict controls on capital.After five failed emergency meetings and numerous conversations among leaders, Greek Prime Minister Alexis Tsipras called on Friday for a referendum on a creditor package that had not yet been agreed. World markets will remain skittish until there is some certainty on what happens in Greece, and this means we will retain a seat on the markets rollercoaster ride.

As global markets plunged following one of the most dramatic weekends in Greece’s five-year financial saga, the country woke up to a changed financial landscape that many in the markets fear could be a prelude to a messy debt default and a damaging Greek exit from the euro. Appearing on Greek television at 1 a.m. after inconclusive talks in Brussels, Tsipras said the International Monetary Fund and European creditors that have lent Greece over $100 billion had handed his government a humiliating ultimatum. The spectre of Greek mums and dads unable to access their bank accounts, and long queues outside ATMs, is a scary graphic but Greece’s problems will not lead to a worldwide financial armageddon. A bank employee came out at 8 a.m. and told us ‘you’re not going to get any money,’ but we’re hearing that 70 branches will open.’’ Deputy Minister of State Terence Quick said special arrangements would be made for pensions, telling private Antenna television that pensions would be dispensed in full as many pensioners don’t have bank cards.

History has shown during the past six years that debt-laden European economies that have been on the brink of default and whose membership of the European Union has been under threat have seen their various crises averted. Greece has shut down its banking system for six days and imposed capital controls after the European Central Bank opted not to expand a lifeline of emergency funds. The capital controls are meant to staunch the flow of money out of Greek banks and spur the country’s creditors to offer concessions before Greece’s international bailout program expires Tuesday. Eurozone ministers responded to the walkout by saying Greece’s current bailout would end on Tuesday night, leaving Athens with little cash and no means of meeting debt obligations.

There is plenty of tough talk from the European lenders and the IMF about an act of default leading to an end to providing Greece with financial assistance. The accelerating crisis has thrown into question Greece’s financial future and continued membership in the 19-nation shared euro currency — and even the 28-country European Union.

Investors around the world are worried that should Greece leave the euro and say it can’t pay its debts, which stand at more than 300 billion euros, the global economic recovery could be derailed and questions would grow over the long-term viability of the euro currency itself. ‘‘The images of queues at ATMs in Greece are stripping traders of what little confidence they have left in the nation, and the financial earthquake that happened in the eurozone over the weekend can be felt around the world,’’ said David Madden, market analyst at IG. Tsipras and his combative finance minister, Yannis Varoufakis, for several months engaged in a delicate dance of promising reforms while demanding debt reduction. Germany is owed €57 billion, France €43 billion, Italy €38 billion and Spain €25 billion – on top of those countries’ contributions to the IMF loans.

But as AMP economist Shane Oliver points out, even the weaker economies within the EU have become stronger in recent years and many have been removed from life support thanks to getting their economic health in order. For emergency needs, such as importing medicines or sending remittances abroad, the Greek Treasury was creating a Banking Transactions Approval Committee to examine requests on a case-by-case basis.

And even though a Greece secession from the EU would be painful, it might at least bring to a close the drawn-out negotiations, which have been going on since 2010. The two Frenchmen in the Hearst newspaper strip disguised their lack of courage by being overly polite and deferential to each other. “After you, Alphonse.” “No, you first, my dear Gaston.” That may be where we are with Greece and the euro. French Finance Minister Michel Sapin said talks with Greece could resume at any time, while Pierre Moscovici, the European commissioner for economic affairs, said negotiations were cut off when an agreement seemed within reach. The referendum decision, ratified by Parliament after a marathon 13-hour session that ended in the early hours of Sunday, shocked and angered Greece’s European partners.

The country’s negotiations with its European creditors have been suspended, with both sides accusing each other of being responsible for talks breaking off. With the banks and the stock exchange shut, ATMs out of money, and capital controls limiting future transactions, the next few days will be tense and chaotic, perhaps a preview of what’s to come. China’s rate cut, the fourth since November, appeared to be aimed at reassuring investors after a plunge in share prices last week, rather than boosting economic growth, analysts said.

The timing is ‘‘rather market-friendly’’ and appears to be meant to ‘‘provide a support to the market sentiment,’’ said Credit Suisse economists Dong Tao and Weishen Deng in a report.

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