“What men or gods are these? What maidens loth? What mad pursuit? What struggle to escape? What wild ecstasy?”
The Townly Vase. Source: British Museum
That’s what John Keats wrote almost 200 years ago while contemplating the bas-relief on a Greek vase. But the words could almost be applied to the political and financial situation in modern Greece.
Not much has changed since the last time we discussed Greece, except that the deadline for Greece to make its debt payments has gotten closer. Last weekend Prime Minister Tsipras called for a referendum on July 5th regarding the latest European bailout proposal. He also instituted capital controls and declared a bank holiday to avert a collapse in the Greek financial system.
Global markets have sold off almost 5% since negotiations hit an impasse last week. For Greece, the consequences are significant. Should they leave the Euro—and start printing and using Drachmas—they could lose access to imports. During Argentina’s financial crisis in 2001 and 2002 that economy collapsed. There were riots; people couldn’t get medications; diabetics died because insulin wasn’t available. Some foresee a similar humanitarian crisis if Greece leaves the Euro.
All-Cap World Index, 2014-15. Source: Bloomberg
But like Argentina 15 years ago, it’s hard to see significant contagion outside of Greece if they go back to the Drachma. Greek debt is mostly held by the ECB and IMF, and they aren’t about to become insolvent. A Greek default may be no more significant than the $40 billion bankruptcy of the electric utility Energy Futures last year. The lights didn’t go out in Texas back then.
Up to now, polls have shown that most Greeks want to stay in the Euro. They prefer having a stable currency and banking system to the chaos and manipulation of their pre-Euro economy. But they also want an end to the current austerity regime. That’s why they elected Tsipras and the Syriza party.
But uncertainty has increased, and along with it, volatility. Keats closed his famous poem with the lines, “Beauty is truth, truth beauty. That is all ye know on earth, and all ye need know.” Next week’s referendum may offer us truth. But as for beauty? We’ll have to see.
Douglas Tengdin, CFA
Charter Trust Company