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Is this a Greek tragedy revisited or Groundhog Day?

How did Greece came to be in its current situation and what do Yes and No votes in Sunday’s referendum portend? James Penn, senior portfolio manager, Thomas Miller Investment, takes a view

Press One: For Update on the Eurozone Crisis.

Press Two: For Likelihood of Greece exiting the Single Currency.

This is a wry characterisation of the position that most investment advisers found themselves in four years ago when the problems with Greece first emerged.

One inevitably developed a somewhat mechanical response to client queries, such was the complexity of the issues, the lack of certainty, and the changing response of Europe’s leaders.

Wind forward four years, and we find ourselves once again brushing up on standard responses, scarcely able to believe that nothing (seemingly) has been done to resolve the matters in the meantime.

Perhaps nowhere else in the investment world is the notion of ‘Groundhog Day’ more relevant.

As I write the position in Greece is that the left-wing Syriza government has refused to accept the creditors’ proposals for reform.

Syriza had made its own proposals, but these were seen as too focused on tax rises and not enough on spending cuts.

On June 27th Tsipras, the Syriza leader, called a Referendum, asking the population to vote Yes or No to the creditors’ reforms (this is not the first Greek a Referendum – former Prime Minister Papandreou called one in late 2011 – which didn’t in the event happen as he was forced out of power).

A Yes vote may mean an end to Syriza, as they have campaigned against it. They currently claim that they would continue to represent the country even in the event of a ‘Yes’. However it is unlikely they will still have sufficient credibility, and an interim leader is likely to be appointed as was the case in 2011-12. A No vote will be potentially catastrophic.

Whether the motorbike riding Tsipras anticipated that the ECB would cut off funding to the Greek banks is unclear, but this is what has happened, with cashpoint withdrawals limited to €60 per day.

Sobering reality

The fact that the cash taps have been turned off in recent days looks to have brought a sobering sense of reality to peoples’ minds.

Initially, 55% of the population were expected to vote No.

That has swung in recent days. Current online betting indicates that the probability of a Yes vote at 66%, and last Tuesday Paddy Power in Ireland paid out to punters who placed odds on the Yes outcome.

While defying credibility in terms of its intractability, the re-emergence of the Greek crisis is all the more disappointing given that, as little as a year ago, the country appeared to be on an upward trajectory.

So how on earth did we get to this point, bearing in mind that even in 2011 capital controls were not imposed?

Basically, it all boils down to the Greek President. In Greece the Head of State is elected by Parliament every five years, and Mr Papoulias was due to stand down in March 2015. Elections for a new President in December 2014 were unsuccessful so, according to the Greek Constitution, a snap general election was precipitated. This was won by Syriza in January 2015.

Debt reductions for Greece may well come in time, but the creditors are unlikely to grant them to the antagonistic (what a great Greek word that is!) Mr Tsipras.

Predicting the outcome of the Referendum is treacherous. If Syriza loses then it is likely to go the same way as other left-wing, idealistic governments (think of the Spanish Republican government in the 1930s, or the Sandinista government in Nicaragua in the 1980s).

On the other hand, if it wins it will be a case of….

Press One: For Update on the Greek default.

Press Two: For Update on the Likelihood of the Single Currency continuing into the future.

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