Greece’s financial problems have dominated headlines in the past week. Here, e.g., are some excerpts from The Wall Street Journal:
Saturday 20 June. “U.S. stocks ended lower Friday… worries over Greece sent investors piling into ultrasafe Treasury bonds….”
Tuesday 23 June. “U.S. stocks advanced Monday…lifted by gains in health-care and financial shares as well as optimism that Greece will eventually reach a bailout deal with its creditors.”
Wednesday 24 June. “…stocks climb[ed]as Greece moved closer to a bailout deal with creditors.”
Today 25 June. “U.S. stocks ended lower Wednesday, with the Dow Industrials posting their biggest one-day decline in nearly a month, as recent optimism about a bailout deal for Greece faded.”
Cynicism, of course, was invented in Greece, and today a cynic might wonder if headline writers were using Greece as a catch-all explanation for whatever had happened the day before. Regardless of tomorrow’s news, we should keep three things in mind:
First, the situation is very fluid, as the Journal’s headlines demonstrate. One day a compromise is near, the next day Greece and its creditors are back at an impasse. If the way forward were obvious and clear, the parties would have found it by now. For anyone not close to the negotiations (and perhaps even for those who are), predictions are necessarily speculative.
Second, there’s good reason to believe that a Greek default, if there is one, will be manageable. The European financial system is much better able to adjust to default, and a possible “Grexit” from the euro, than it was when Greece’s problems first came to light. In that sense, as we’ve argued before, a default will be allowed to occur only if it doesn’t really matter.
Third, even if a compromise is reached in the next week, Greece is unlikely to disappear from the headlines. The Greek problem is inherently political and will require a political solution, and political solutions are seldom final. Whatever we hear in the next few days, we are unlikely to have heard from Greece for the last time. Timeo Danaos et dona ferentes.
This article was written by Craig Lazzara, global head of index investment strategy, S&P Dow Jones Indices.
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