We felt it may be beneficial to give you an understanding of the current financial crisis in Greece and how it will affect your investments, as this situation will dominate news headlines in the immediate future…
Not again, what’s happened this time?
Unfortunately it’s the same old story, Greece owes money and a significant loan repayment is due on 30th June – as they haven’t got the cash available they need borrow additional funds via a new loan.
To receive the new loans from the International Monetary Fund (IMF) and the European Central Bank (ECB), they have to make some structural changes to the way they run their country.
This situation has been building for some time with Europe demanding economic reform in Greece.
The Greek leaders have “gone to the wire” declaring that they would not be dictated to by Europe.
The general consensus was that they would relent and announce reforms to get the cash needed to fund the loans.
Unfortunately they haven’t, so the IMF and the European Central Bank said, no reforms, no money.
That is the current situation – Greece has run out of money to run their country and are being left on their own.
Ultimately this could lead to a default on the loans and their removal from the EuroZone.
If Greece defaults, what happens?
Greece’s whole economy will go into economic hardship and probably a recession and they will revert to using drachma as their currency.
Greek banks won’t be able to lend money, businesses will go to the wall, there will be a massive fall in the value of the drachma and overall it’ll be a long tough time for Greeks.
Imports will be very expensive, unemployment will get worse before it gets better and in all probability there will be more political upheaval.
What about my Superannuation and investments?
The two major investment asset classes are shares and property.
Share markets the world over don’t like uncertainty, so today already global share markets have fallen, including the Australian market.
The fact is that there are no buyers around to keep share prices up as investors and markets sit on the sidelines waiting for this crisis to be resolved.
We believe the Greek situation will have a negligible effect on property prices in Australia – notwithstanding the fact that there is an issue with a perceived house pricing bubble, especially in Sydney – note – that is a completely separate issue.
The real concern for investors is how the Greek situation influences other European countries with a similar problem, like Portugal, Spain and Italy.
Will their future austerity programmes be affected – if could this lead to broader political instability?
Will they become intransigent like Greece and more loans default, therefore creating more write offs affecting other European Governments and banks.
This is the biggest concern, creation of widespread instability in all of Europe.
Negotiations are continuing between the Greek leaders and those in the IMF and the ECB, obviously there will be much more dialogue over the next 48 hours.
We will keep across these developments and let you know as they transpire – note, we are not recommending any investment portfolio changes at this time.
Should you have any queries, please don’t hesitate to contact us.
“This document or website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making an investment decision. Charter Financial Planning Limited and its authorised representatives do not accept any liability for any errors or omissions of information supplied in this document except for liability under statute which cannot be excluded.”