So, the burning question of the day is who will prevail in Athens?
As Greek voters prepare to the go to the polls on Sunday and central banks around the world prepare to enter crisis mode if far left-wing candidate Alexis Tsipras wins and reneges on the country’s bailout package, thus threatening euro zone solidarity, the Greek economy may slip into something resembling medieval Europe‘s Dark Ages.
All of the money managers in the U.S. and around the globe will have a busy afternoon and evening watching and waiting and finally executing their market calls. BlackBerries and iPhones will be at the ready during Father’s Day barbecues. Most predict a future for the Euro, though admittedly fraught with weakness and instability.
In recent days, international companies have been divesting their Greek branches. French supermarket giant Carrefour SA sold its Greek branch to its local partner at a loss, Coca Cola’s Greek operations were downgraded by Moody’s Investors Service, and various import-export insurance companies have stopped covering transactions with Greek companies.
In addition, Greece risks blackouts as Russian gas giant Gazprom has said it will cut the country off if it does not pay its bills by June 22
While international companies have withdrawn from Greece, the Greeks themselves have stopped buying everything from clothing to medicine.
The only things that have been selling well recently have been staple foods like pasta and canned goods, which have been flying off the shelves. Greeks are stocking up on non-perishable food in panic-buying mode as they prepare for shadowy worst-case-scenarios following the election. A quiet rush on banks has been occurring, with $1 billion in deposits leaving Greek banks each day for some time.
As for the euro itself, it may not really matter much, at least in the medium term, as most money managers are betting that the euro, the currency of 17 nations from the Baltic to the Mediterranean, will eventually weaken, whatever the outcome on Sunday.
“The hundred billion bought us two hours of relief, and then interest rates began to go up again and markets began to zoom in on Italy,” says one money manager, referring to last weekend’s 100 billion euro bailout for Spanish banks. “It has become a systemic issue. Until we see a lasting resolution of those doubts, we feel the euro will remain under pressure.”
If the left-wing parties win in Greece and back away from austerity, prompting a default or a disorderly exit from the euro, “we would expect the euro to drop like a stone,” says another money manager. “The consequences would be dramatic.” The currency could sink to parity with the dollar, he says.
The larger point is that whatever happens in Athens, doubts about Spain and Italy will only continue to grow. Those nations’ debt loads are large, and both are increasingly seen as unable to make the kind of changes that will persuade investors to keep buying their debt.
The ultimate answer is for European governments, led by Germany, to agree on concrete and credible steps toward greater fiscal and political integration, including the issuance of broader euro zone debt. That would eventually allow Spain and Italy to borrow what they need with Continent wide backing. In addition, leaders should come up with a euro zone wide bank guarantee to avert full-scale bank runs in shaky countries.
Ultimately, the market will force policy makers’ hands. But with 17 parties sitting at the table, the decisions are glacial. The markets move in a rapid-fire fashion. The stakes are increasing every day.