Greek Debt Crisis: Is a Grexit Looming?

The Greek government is running out of time and money. 

Hirtle Callaghan has been following the news on Greece’s financial troubles closely.  Greece must quickly reach a deal with its eurozone partners to avoid defaulting on its payment owed to the IMF on June 30th.  This potential exit of Greece from the Euro has been termed the “Grexit.”

Hopes for an agreement have been raised, but if the Greek government defaults on its loans it risks losing liquidity from the European Central Bank and could potentially return to the pre-Euro currency, the drachma.

We have been in discussion with economic experts at our manager partners and several common themes have emerged that we wanted to share with our community.

  • In the short-term, a deal will likely be reached to allow Greece enough runway to operate for the next several months. A less likely scenario is failure to reach a short-term deal and default or delay the IMF payment due June 30th. Such a scenario would likely involve capital controls designed to keep money from flowing out of the country, but would not necessarily indicate a Grexit. The least likely scenario is a Greek exit from the Euro.
  • The European Central Bank has more latitude and willingness to step in and provide liquidity to Greece should it be necessary. Because of this, any potential delay or default on Greek debt payments should be fairly well-controlled and a Greek default should not create a "global risk-off" scenario, and any knee-jerk market reactions should be temporary in nature.
  • The situation today is more political than economic and involves a lot of posturing for the benefit of various constituencies. No one truly wants a Grexit. The Greek population wants to stay in the Euro and is willing to accept some compromise. Greek politicians want to keep their constituents happy and don't have mechanisms in place to handle an exit. Finally, other Eurozone members don't want to set a precedent that could signal other peripheral countries exiting and cause further turmoil.

Matthew S. Mead, CFA

Matt is a Vice President in the Investment Department at Hirtle Callaghan.  Prior to joining Hirtle Callaghan, he served as an investment analyst at Greenleaf Financial Group researching financial services companies.  Matt began his career at KPMG, covering multinational manufacturing and servicing companies.  He graduated from the University of Notre Dame with a B.S. in Accounting and a M.S. in Accountancy.  Matt is a CFA charterholder.

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