The views expressed above are based on information which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Principal, and any expressions of opinion are subject to change without notice. This article is for information purposes and should not be treated as advice to buy or sell any particular investment.
The Greek crisis
06/07/11
The economic crisis, and resulting political stress, in Greece has obviously come to a head again in recent weeks and many of you are asking us for our opinion on the subject.
In the short term, we are relatively sanguine. The direct exposure of the UK banks to Greek sovereign debt is relatively small. Indeed the European Central Bank has perforce taken on a progressively larger proportion of Greek debt, and although this is potentially further bad news for European tax payers it does serve to insulate the global financial system against a vicious circle of write-offs. Although the risk that political impasse will cause imminent default has grown in recent weeks, we still think that the likelihood remains that we will 'muddle through' this crisis, with the provision of another loan.
However the economic data coming out of Greece makes it clear than even the most determined austerity package is not succeeding in bringing the deficit back to sustainable levels. It seems inevitable that Greece will default in due course, and while the default itself is now fully priced into markets, we do not underestimate the wider dislocation that this may cause. We think that there are many unanswered questions, which even policy makers probably do not yet know the answers to, about the impact of this on the euro and on the wider European financial system. Undeniably this is a reason for concern and is something that we are watching with great care, but we expect that the current immediate crisis will soon pass, and then risk appetites will at least for the time being be rebuilt.
by Richard Cumming-Bruce BA SIE (Dip), Senior Investment Researcher.
After graduating from Exeter University in 1986 with a degree in Classics, Richard joined Leopold Joseph as a trainee investment manager. He moved to Granville in 1992, and in 2000 was part of the MBO that formed Nevile Merriam, which became part of the Principal Group in 2003. He assists in stock selection and in Principal's Targeted Return Portfolio service and is responsible for some of Principal's written output.
