7 July 2015
It’s hard to imagine a country where they lock the banks for a week and restrict your access to money. Especially poignant have been the images of pensioners, many of whom will have faced years of austerity in their youth, having to queue to access what they see as their rightful income. Generally older people tend to be quite circumspect about the vicissitudes of life (having seen quite a lot of it) however in the images from Athens you get the sense of revolution.
The fact is that if the ‘Grexit’ comes about, and following the overwhelming ‘No’ vote in the referendum that seems the most likely course, it won’t only be Greek pensioners that will be affected. Some experts predict a Grexit could lead to a quick fall in the value of equities of up to 10%. Others suggest the markets have already discounted the situation. It’s a question of how you price the risk and, as ever, everybody is guessing.
Those who will suffer most if the market gets a jolt will be people looking to retire in the next few months. They will at least be thankful for the new pension regulations as the last thing you want to be faced with in an uncertain market with a depressed portfolio value is being forced to buy an annuity. At least you can stay invested and hope for recovery.
If the markets do fall it isn’t only pensions that will be affected – stocks and shares ISAs will lose value too. Furthermore we must look beyond the London Stock Exchange as investing is now a world-wide business. What happens in New York or Hong Kong or Tokyo will also have an impact.
Pension-wise it isn’t only equities that will be affected. In times of uncertainty money tends to take flight into gilts which would drive yields down. This will have a particular impact on DB schemes that are already under pressure to fund gaps in their numbers. Greece’s European creditors will also have a sudden hole in their balance sheets that they will somehow need to cover.
This is only the short term view. The fact is that Greece has already defaulted and the European Central Bank the International Monetary Fund needs to decide whether to further prop up the Tsipras government. Central banks estimate Greece needs a further Eur 50 billion on top of the 300 billion it is currently in debt by.
It heaps risk upon risk and you can imagine what your average high street bank would say to that. Sensible lending principles are being trumped here by political expediency. At some stage, and that may be sooner than people think, lenders are going to say ‘no more’.
The longer term view has to be the worry about a ‘Spexit’ – if Spain goes down the same route, and Spain has many of the same problems as Greece writ larger – it may well be that the whole Eurozone experiment fails.
Which brings us to the possibility of the Brexit. Understandably with all the Hellenic shenanigans going on David Cameron’s agenda of re-defining Britain’s relationship with the Eurozone has tumbled down the European leaders’ agenda. Of course it is not unreasonable to consider that by the time the UK is offered a referendum on Europe towards the end of 2017 the Eurozone may be a very different place entirely.
This summer we may all be on a roller-coaster ride without needing to go anywhere near the pleasure beach or a theme park.
SHARE: