Are you ready? Have you thought about what happens if Greece defaults?And, while one doesn't necessarily lead to the other, if that default leads sharply on to a Greek exit, or Grexit, from the euro? Most commentators will tell you that you don't need to, because the risk of Grexit has been so high for so long that everyone is prepared for it.
The banks have cut their exposure to Greek bonds. Investors have sold out of Greek stocks. The European Central Banks has plans in place to prevent contagion. Everyone with money in a Greek bank and half a brain has moved it to another country. The result? Bond yields on some southern European bonds have risen, and the MSCI EMU index (which tracks European stockmarkets) is down 8% from its peak earlier in the year.
But overall the global markets are mostly ignoring Greece. Is that the right response? We disagree on this here at MoneyWeek. John Stepek thinks the markets are well enough prepared to take it in their stride.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
I am not so sure. That's not because I doubt that the banks, the European Central Bank (ECB) and Greece's rich are financially prepared for Grexit. It is because I am not convinced that it is possible for all of them and us to be psychologically prepared.
We like to pretend that markets are about things we can measure interest rates, valuations, debt levels and the like. We pretend the same about economies and economic growth. Economists can (and do) argue for hours, for example, about whether QE has worked or not. When we do, we look at money supply numbers, at bank balance sheets, at lending, at asset prices. But what we don't do is look at the effects of QE that can't be measured in numbers.
What of the way it has shifted power from politicians to central bankers, something that, as we have said here before, has long-term implications for democracy? The way it has exacerbated wealth inequality? And the way it has created intergenerational strife making baby-boomers with houses feel rich, and non-boomers without houses feel poor?
It's the same with Greece. The banks may not be exposed to Greek bonds. But they can't measure the fact that a Grexit will undermine the eurozone. What if we all suddenly see it for what it is? Not a grand political union, but a badly structured currency union that the fiscally iffy can leave at will.
What might that mean for Portuguese sovereign bonds? What might a continent concerned about political stability or capital controls coming down around Greece do to equity prices, or to cash for that matter? And how would we all react to the misery in Greece? As the FT points out, the odds of a failed state are high: "a Greece that could manage exit wellwould have also avoided today's plight".
We can't measure these things shocked people behave in unpredictable ways. But I don't think today's fragile markets will be able to take them in their stride either.
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
Beat the cost of living crisis – go on holidayEditor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
-
How capitalism has been undermined by poor governanceEditor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
Don't be scared by economic forecastingEditor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
The wolf returns to the eurozone’s doorEditor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
-
Things won't just return to normal – that's not how inflation worksEditor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economyEditor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Why we need to get a grip on our governmentEditor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
