Markets were today absorbing the effects of the Greek ‘No’ vote after more than 60% of voters in Greece rejected the terms and conditions of continued financial assistance.
The Greek finance minister, Yanis Varoufakis, has also resigned following the vote.
Observers broadly say – just as they did last week ahead of the vote – that contagion will be contained but that there will be uncertainty in European equity markets.
Funds Europe here presents some of today’s commentary:
Trevor Greetham, head of multi-asset, Royal London
“The referendum was never going to end uncertainty for markets but this outcome increases the likelihood of prolonged bank closures, civil unrest and euro exit. The euro is likely to sell off further.
“Greece's democratic rejection of the austerity spiral casts serious doubt on the long-term political viability of the euro area - especially if Greece leaves the euro, devalues and eventually regains control of its destiny in the way Iceland has. This is a long-term story, however.”
Stephen Macklow-Smith, fund manager, JPMorgan European Investment Trust
“Rhetoric about Greek debt somewhat misrepresents the reality. As a result of previous rescheduling, Greek debt maturity averages 16.5 years. The level of interest paid … is between 2% and 3% of GDP; below other peripheral countries and below the UK.
“The danger is that other EU member states will see the referendum, which Syriza view as a game changer, as irrelevant to the key problem, which is Greece's lack of competitiveness. Thus far, Syriza has attempted to keep the public sector in its bloated state, aided by funds from abroad. Its creditors have (too late) realised that this fatally weakens the Greek economy, and they will not accede to new loans without strict conditionality. This means that Greece will probably remain chronically short of euros.
Sam Theodore, managing director at Scope Ratings, a credit rating agency
“Before any deal is sealed we are likely to witness significant turmoil in the markets for bank debt, with little to no new issuance. Spreads of peripheral country banks (and sovereigns) would be particularly affected, arguably widening more than last week. This may be particularly the case with Portuguese, Italian and Spanish banks: the smaller and less geographically diversified the bank, the wider possibly the spread.
“We note that none of the 25 large European banks Scope rates publicly has material Greek exposures which would hurt their capital — very different from the situation in 2011-12. We do not contemplate any rating actions due to the Greek 'No' in the referendum. Scope does not rate Greek banks.
“To conclude, funding costs may be affected, especially for peripheral banks, but the credit fundamentals of the large European banks should not materially shake.”
Paras Anand, head of European equities, Fidelity Worldwide Investment
“Whilst the crisis in Greece remains fluid and the ‘No’ vote by the electorate throws down a new gauntlet to the European leadership, I believe the risk of contagion to the wider financial system remains modest.”
Salman Ahmed, global strategist and portfolio manager at Lombard Odier Investment Managers
“Beyond the next few days, the sharp fall in economic activity in Greece is sure to have severe social implications and it remains to be seen if the Syriza government would survive the sharp economic pain that lies ahead.”
©2015 funds europe