`Haan’ ya `na’: the greek tragedy in its final act unfolds on sunday

All eyes across the globe are on Greece this Sunday.

And Monday is likely to be the most important and perhaps terrifying day for global financial markets as 11 million debt-laden Greeks will vote on whether they want to remain a part of the 19-nation European Union or not. A `No’ may spark a worldwide financial crisis that may make 2008 Lehman Brothers’ demise look like a walk in the park.

A `Yes’ on the other hand would mean Greece stays in the EU but then the embattled nation may have a quick election to replace the existing government.
Earlier this week Greece, which has already had two bailouts during 2010-13 estimated at $264 billion, failed to make a $1.7 billion debt payment to the IMF. In effect, the Greeks are already in default.

Both Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis have urged citizens to vote against more austerity. They want Greece’s outstanding debt be pared down substantially and repayment periods extended further. Both the PM and the FM have publicly stated they will resign if the referendum vote is a `Yes’ for more help from the EU. Tsipras says the EU/IMF imposed austerity has led to a humanitarian crisis in the country.

To be fair to Tsipras and Varoufakis, the two earlier bailouts have mostly been used to pay existing international debt rather than get the Greek economy back in shape. Greece’s GDP has shrunk by 25 percent over last 5 years and nearly a quarter of the workforce is unemployed.
Greek banks have little or no money to lend to businesses. Most of their existing funds and those from the EU are being used to keep ATMs afloat and pay pensioners a fraction of what the government owes them. Greece still doesn’t have financial steps in place for an orderly winding down of a local bank if it goes bust.

GLOBAL MARKETS:

Nearly all institutional investors took steps to safeguard their market positions after Greece said in 2009 that it had been under reporting its deficit figures for years. Germany, which has been in the forefront of the previous two bailouts has an exposure estimated at $90 billion, which is just roughly 3 percent of its GDP. However, individual German and European banks, who purchased highly toxic Greek debt, may suffer hugely. They stand to pose a large risk to the fragile global financial system.

Meanwhile, India has a minimal direct exposure to Greece. Just 0.1 percent of the country’s exports go to Grecian shores but a worldwide contagion may hit local stocks in the short term.

Global financial institutions, who may take a hit on their international balance sheets due to the crisis are likely to choose booking profit in India. Therefore, a dip to 7,800 levels on the Nifty should be seen as an opportunity to buy into quality blue chips. The Nifty, meanwhile, closed above the crucial 8,450 point mark on Friday.

There is never a dull day in financial markets on a regular basis. Next week will be historical no matter which way the Grecians go! So, sit back, relax and enjoy the roller coaster ride.

(Image credits: euractiv)