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Greece, in need of catharsis

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The Greek debt issue has become a never-ending saga, says Penny Lovell, Head of Private Client Services, Close Brothers Asset Management…

Have you ever watched "Game of Thrones"? "Breaking Bad"? or "Californication"? As rewarding as a blockbuster series might be, watching a story without an end in sight can become, at times, tedious. But they do all eventually end, albeit some more explosively than others. Yet, six years into the elongated recovery, we have witnessed the Greek debt issue become a never-ending saga, less like “Game of Thrones” and more like the “Bold and the Beautiful” (now into its 28th year!). 

While I believe talking of “investments” precludes short term analysis, every now and then some important standalone events occur that can potentially shape the financial markets going forward. In 2008, it was the demise of Lehman Brothers that shook the financial world. Now, Greece is at the forefront, with some fearing that a “Grexit” could become contagious and initiate the next crisis. 
 

Although we try to observe the problem from an economic standpoint, the fact that debt ownership is national and supranational has resulted in political brinksmanship, rather than an exercise in economics. Negotiations reached a standstill last week and, with Greek banks on the brink due to massive deposit flight, it has become imperative that some sort of long or short term solution is found quickly. Last Monday, an emergency European summit was called to Brussels, to try and rekindle talks, which could last all week. While the first inklings of a deal are visible, we are still far from a final deal, which will then have to be voted on by the Greek parliament (a big “if”), ratified by the remaining Eurozone parliaments and, most difficult of all, implemented. 

Now, I ask, is Greece important? If the current structure of the Euro is considered long-term viable, then losing Greece won't be much of a problem. If it's not, it could pave the road for future troubles in the Eurozone economy. In a note earlier this week, Close Brothers Asset Management CIO, Nancy Curtin, described just that.

With the stakes so high and the global economy still recovering, I would hope to see a cathartic development for all parties involved, rather than continuing to “kick the can down the road”. However, European QE allows time for both scenarios, so don’t be too surprised if we are still discussing the same issue in September

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