OUR THOUGHTS ARE WITH RESIDENTS OF GREECE AT THIS DIFFICULT TIME
The Greek economy has been in a state of depression for years already.
Now people are standing in line for hours to withdraw the maximum daily allowed amount of €60 euros from ATMs, and mothers are stocking up on medicine and baby formula.
Greece has defaulted on its International Monetary Fund debt and is therefore (technically) also in default to the European Central Bank and the European Commission.
And it will get worse before it gets better. On Sunday, the people will vote in a referendum about whether or not to accept the additional austerity measures demanded of them, and the German Chancellor Angela Merkel has said there will be no negotiations in the meantime. Market commentators are raising their estimates of the likelihood of Greece exiting the Euro above 50%.
No bones about it, it’s a difficult time to be a resident of Greece and our hearts go out to its citizens.
From the point of view of Australian investors and superannuation balances, though, the impact should be limited.
The Governor of Australia’s Reserve Bank describes our exposure as “miniscule”. The entire Eurozone now only represents around 4.5% of our exports (with only 0.5% in total to the more troubled countries of Portugal, Italy, Ireland, Greece and Spain).
In addition, the major European economies and banking sectors are thought to be stronger than they were during the European credit crisis of 2010-2012 and the European Central Bank is regarded as having demonstrated the will and capacity to act.
So what should Australian superannuation and other investors expect?
- Short term volatility. Markets dislike uncertainty.
- Continued low rates. At least 30 central banks around the world have eased monetary policy this year, led by the European Central Bank’s embrace of quantitative easing, and Greek turmoil will maintain the downward pressure (except, possibly, in the United States).
- Business as usual for the Australian economy in the medium term – our fortunes are much, much more closely tied to China’s economy than Europe’s.
…in other words, business as usual for Australian investors. Some investors, in fact, will see any further short term weakness as an opportunity to invest more.
What are your thoughts?
Do you think Greece will exit the Euro? Are you concerned European turmoil may affect your superannuation? Is there anything else you’d like to know about investments or superannuation?
Join the conversation — leave a comment below and let us know what you’re thoughts are.
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