Investment Clock insights

Upcoming Greece Referendum


Trevor Greetham

29 June 2015

Expect market volatility surrounding Greece to continue and intensify this next week with European equities, peripheral sovereign bonds and the euro itself most exposed.

By calling a referendum for Sunday 5 July, it is clear that the Greek government will not pay the International Monetary Fund (IMF) money due by Tuesday 30 June and that the current bail-out programme will lapse. In view of this, the European Central Bank (ECB) has decided not to provide additional liquidity assistance to the Greek banks this week, forcing bank closures and capital controls to prevent a run on deposits.

The last time Greece, the cradle of democracy, threatened to put an austerity deal to the public was in 2012. German Chancellor Angela Merkel said it would be seen as a vote on continued euro membership and the Greek government backed down. This time the referendum will almost certainly go ahead and while the Greek people are strongly pro euro, they have endured six years of recession; what is seen as intransigent creditor behaviour over the last week has alienated many.

For Syriza Prime Minister Alexis Tsipras, this will be a defining moment. If the people reject austerity he may well lead them out of the euro. If they accept it, his government must surely fall.

We remain constructive on global stock markets despite this turn of events. Monetary policy is very loose and the drop in energy prices over the last year provides a further boost to global growth. Stock markets are usually volatile in thin summer trading. With investor sentiment already towards the depressed end of the range, the latest bout of uncertainty is probably creating a short-term buying opportunity for global stocks.

Events in Greece over the next seven days matter greatly for the long-term political viability of the euro, but it is hard to see developments in a country making up about one percent of European Union GDP having a lasting impact on world markets.

The value of your investment and the income from it is not guaranteed and can fall as well as rise. This article is for professional customers only. The views expressed are the author’s own and do not constitute investment advice.