Brace for it, but remain calm: some initial thoughts on the Greek debacle

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Greek debacle

Last week saw the birth of a new term, “Greektique” from the combination of the words Greece and fatique, signifying how the markets were tired and fed up with watching the Greek saga unfold. However, the ensuing developments were so unprecedented that none can stop following what is happening, nor dismiss the effect that officially entering previously uncharted waters will have not only on Greece and the Eurozone but the global markets and economies as well. Chancellor Merkel had expressly said that a deal should have been reached before the markets opened on Monday, but Alexis Tsipras, the Greek Prime Minister, and his government had other plans.

debacle-in-greeceMany say that the single currency is inherently suffering from the battle between politics and economics. As the Greeks decided to go to a referendum on 5th July to let the people decide whether they want to accept the proposal by the country’s international lenders, negotiations were effectively suspended while the ECB applied its Emergency Liquidity Assistance procedures and decided to put a cup on its funding of Greek banks. Consequently, the Greek government declared a bank holiday and banks in the country are expected to remain shut for the whole week, as will the country’s Stock Exchange. Moreover, reminding all of the situation in Cyprus back in 2013, capital controls were imposed and Greeks will only be allowed to withdraw from the ATMs a meager €60 per card per day.

 

Greek debacle euro fall The opening trading in the Asian markets in the early hours of today has seen the Euro fall against the US dollar, the Japanese Yen and other forex pairs, while there was also a fall in the Asian stock markets. Many market participants, especially forex brokers had already announced the taking of measures in view of the developments in Greece, such as decreasing leverage or moving all trades to close only positions.

No matter how well prepared the system and the markets had been for Greek “accident” it is certain that it has far-extending repercussions. And perhaps this was exactly the intention of the Greek side, who are counting on a strong market reaction to the crisis in order to strengthen their bargaining position.

Increased market volatility and a fall in the Euro are inevitable for the time being and all affected market participants need to retain their calm and exercise self-restraint in view of the upheaval. However, we will venture a guess: The stakes are too high for everyone to let this go completely to shambles. Therefore, responding to market pressures, calls from the other side of the Atlantic and well as from within EU member states as well, the most likely outcome is that the two sides will return to the negotiating table and a deal will eventually be reached.

The drama will play out for a few more days and it will mean volatility and opportunities for those with fast reflexes and disposable incomes. For those of you who may be suffering losses for the time being you shouldn’t panic as things will normalize, instead keep calm and carry on and if your risk tolerance is low then it is probably best if you sit this one out.

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