EDITOR'S LETTERMerryn Somerset Webb
What happens after Grexit?
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 Bank 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.
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.
• Read the full editor’s letter here: What happens after Grexit?