Over the past several years, Greece has been in the midst of a sovereign debt crisis triggered by one of the world’s highest level of government indebtedness. Greece agreed to bailout programs conditioned on strict austerity programs and structural reforms. Recently, talks between the Greek government and European officials hit an impasse and as such, this crisis is deepening and Greek government has imposed capital controls to limit the flight of capital from their financial systems.
Last weekend weekend, capital controls were imposed and banks were closed. The imposition of capital controls (essentially a limit on how much can be withdrawn by depositors from the bank, currently 60 EUR per day) was a widely expected event. Since December, depositors have withdrawn billions from their accounts.
Greek banks are running out of money, their assets are likely largely Greek sovereign debt, which they are unable to sell into the market and the ECB has refused to increase liquidity to Greek banks or extend the current bailout program.
Greek Prime Minister Tsipras has decided to put the decision of whether to accept the proposal with the creditors to a referendum, which will be held on July 5th.
Polls in Greece continue to reflect a desire to remain in the Eurozone and, from this perspective, one could argue that Greeks might vote in favour of the package and thus remain in the euro. This would potentially result in a more stable situation. However, after years of austerity and having elected a very vocal new government that ran on ending austerity, it is not out of the questions that Greeks could vote “no”.
In the weeks ahead, the faceoff between Greece and its creditors will be in focus and may lead to heightened volatility in the equity markets.
Much of what we have seen to date has been largely anticipated and factored in to the markets around the world. A globally diversified portfolio should take advantage of ever changing markets and managers have largely factored in this crisis when choosing and repositioning the underlying investments in these portfolios.
As always, if you have any concerns about how events like this can impact your financial plan, please contact our team.
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