The Portuguese government feels especially threatened if Greece is able to bypass the strict austerity regime, as Portugal has enacted its own austerity measures. Galbraith emphasized the serious social implications of the Greek austerity: Greeks faced a 40% reduction in health expenditure; many Greeks were having trouble getting food, due to the many cuts; and some Greeks were being thrown out of their homes.
But Galbraith believes we are seeing a big pickup in public mood with the new Greek government. Looking forward: Because the Greece economy has contracted 25%, Galbraith believes there’s significant room for growth.
Summarizing the Greek Situation
Professor Siegel noted that the recent flare-up in Greek debt crisis did not spill over to the other peripheral European countries, as it had a few years earlier. When the Greek 10-year bond yields spiked above 11% at the end of January, it hardly caused a ripple in Spanish bond prices and yields, which is very different from the situation just a few years ago.1
Professor Siegel’s bottom line for investors as the European markets shrug off this Greek news to deliver strong returns for the start of 2015: investors are comfortable with the other peripheral European countries (such as Spain and Italy), and the Greek situation is not viewed as a systemic volcanic crisis by most investors.
Read the Conversations with Professor Siegel Series here.
1Source: Bloomberg.
Important Risks Related to this Article
Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance.