As it teeters on the brink of financial collapse, would Greek default spell disaster for markets?

How would a Greek default affect markets? (Source: Getty)

Kathleen Brooks, research director at Gain Capital, says Yes

Greece might not be the be-all and end-all for markets in the short term, but in the long term, the events of the last few days could sow the seeds for the next major financial crisis. Our concern is that if another, larger Eurozone member gets into financial trouble in the coming months, then the markets will just assume they are on their way out of the currency bloc.

While Greece and its $242bn (£154bn) economy is not much of a concern from a market perspective, an Italy or Spain, with economies of $2.1 trillion and $1.3 trillion respectively, would be a different beast. This could unleash havoc. And if the Eurozone allows Greece to go under, why not let another member leave?

If that happens, then the market uncertainty around the euro would be huge – could it even survive? As we wait for the outcome of the Greek referendum next week, the markets are not only looking at Greece, but also at potential future victims of market turmoil.

Burkhard Varnholt, chief investment officer at Julius Baer, says No

While we think a Greek default is near inevitable, we do not expect a non-payment to cause market calamity in bond or stock markets. There are three reasons for this. First, this has been highly anticipated. There are various support mechanisms in place which would contain any fallout from a Grexit, and effects would be localised.

Second, most Greek government bonds are owned by public institutions, which will neither panic nor default themselves as they are well-equipped to deal with a default. Finally, sadly enough, Greece really does not produce more than 2 per cent of Europe’s GDP, and therefore does not have the ability to trigger a “Lehman moment”.

It is also worth noting that the other southern European economies of Spain, Portugal and Italy are in much better shape today than they were three years ago – this means they can better withstand Greek default and market pandemonium.

Related articles