Such is the level of market fatigue about the seemingly interminable Greek crisis that investors have become conspicuously insouciant about a possible Grexit, writes Nick Spiro of London-based consultancy Spiro Sovereign Strategy.
Such is the level of market fatigue about the seemingly interminable Greek crisis that investors have become conspicuously insouciant about a possible Grexit, writes Nick Spiro of London-based consultancy Spiro Sovereign Strategy.
The pendulum of market sentiment towards Greece has always swung too far in both directions. In the first half of 2012, investors were scared stiff at the possibility of a Greek exit from the eurozone ('Grexit'). Now, they are too complacent.
The disconnect between the dramatic deterioration in relations between Greece and its creditors over the past several weeks - the language and rhetoric on both sides is deeply confrontational while the negotiations have given way to an ugly blame game and contingency planning for a Grexit - and the resilience of other peripheral eurozone debt markets is striking.
Even though Greece has one foot outside Europe’s single currency area, investors are practically falling over themselves to downplay the market and eurozone-wide consequences of a Greek default and possible Grexit.
Indeed such is the level of market fatigue about this seemingly interminable crisis that investors have become conspicuously insouciant about Greece.
Kicking the Greek can
The prevailing view in the markets is that the Greek can will be kicked a little further down the road. Investors prefer not to ask themselves whether the can is even kickable any longer and, just as importantly, whether there’s any road left on which to kick.
It should be patently clear to markets by now that creditors have all but given up on Greece’s ability and willingness to pursue meaningful reform while the Syriza-led government refuses to abide by many of the terms of Greece’s bailout agreement. Emotions trumped technical issues quite some time ago and too many bridges have been burned since Syriza came to power.
The only thing keeping Greece in the eurozone right now are the persistent fears on the part of creditors about the fallout from a Grexit. To paraphrase former US Secretary of Defence Donald Rumsfeld, it’s still not clear if the 'known knowns' are manageable, never mind the 'unknown knowns' and the 'unknown unknowns'.
A Grexit is not just about financial and political contagion across the eurozone, it’s also about geo-politics. In 2012, the thought of Russia ruthlessly annexing the Crimea was unthinkable. Greece’s cultural and historical ties to Russia and its pivotal role in the unstable Balkans up the stakes in the standoff significantly.
Even if a short-term deal between Greece and its bailout monitors can be struck before today’s emergency EU summit, the inescapable feeling is that Greece’s membership of the single currency area is simply no longer politically sustainable.
There would need to be some sort of a game-changing development - either in Greek politics or in the markets - to create the conditions for a meaningful, longer-term agreement to keep the country in the eurozone.
Right now, there seems to be little prospect of this happening.
Nick Spiro is managing director of Spiro Sovereign Strategy, a niche London-based consultancy specialising in sovereign credit risk.
