While the turmoil in Greece has dominated headlines recently, economists suggest that even if Greece leaves the eurozone, the effects on global financial markets will be minimal.
The statements come after a referendum in Greece over the weekend saw the public reject conditions imposed by lenders on the Greek government as part of a new bailout, leading many economists and political pundits to believe a ‘Grexit’, as it is often referred, to now be almost certain.
Given the effects on local bank funding costs during the height of the European sovereign debt crisis of 2010-12, the prospect of a Grexit has again led many to believe that a resurgence of financial market turmoil is on the way.
However Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital, believes there will be minimal fallout felt here in Australia.
“The bottom line is that uncertainty around Greece is set to drag on for a while. But while the plight of Greece is terrible, there are several reasons not to be too alarmed in terms of the global implications,” Dr Oliver said.
These reasons include the relatively small size of the Greek economy as just 0.25 per cent of global GDP, the improved state of other eurozone economies, the development of defence mechanisms to cope with sovereign debt issues and the reduced exposure of global banks and private holders to Greek debt.
“As the Greece saga drags on, investment markets will likely just get used to it as they have with the Ukraine conflict since early last year. [As such,] the probability of Greece causing a major crisis in Europe that threatens the global economy and financial markets appears to be low,” Dr Oliver said.
Offering a similar view is Darren Williams, senior European economist at AllianceBernstein (AB).
“A Greek departure would plunge the region into uncharted waters, with unpredictable consequences. But policymakers now have powerful tools to help combat contagion and prevent a Greek accident sending the rest of the region back into recession,” Mr Williams said.
“Over the last three years, the European Central Bank has gone to great lengths to get the monetary-transmission mechanism in the periphery working properly. We doubt that it would stand back and let the actions of the Greek government undo all its good work.”
Another important factor is that since the height of the global financial crisis, Australian banks have dramatically reduced their reliance on offshore funds to support their loan books. As such, even if a messy Grexit ensues, major Australian lenders will be less exposed than they were at the height of the crisis in 2008-09.