Grexit – what does it mean for investors
I have been quietly watching from the sidelines on this issue but I figured I would throw my hat in and give my opinion on the possible breakdown of the euro and what I feel the impact either way will be for property investment who have London and UK property, or in fact anywhere in Europe.
The scale of debt is huge: 320bn euros against 218bn GDP or 146% debt to GDP which is dangerous considering GDP dropped 25% since 2010. Unemployment at 26% isn’t helping at all either.
In many ways the big bullies of Germany and France have cause a huge amount of pain for Greece that I feel was unnecessary.
No consensus of default, No agreement between politicians
The bottom line is that no-one knows what is going to happen. As I see it there are 3 possible outcomes:
- 1. Yes vote – in which case they would accept austerity for the next 40 years and after about 2 years they would be back in the same situation.
- 2. No vote – in which case I believe the banks would stay closed for the week while the banks and government got organised.
- 3. No vote – in which case Berlin take a chill pill and realise they don’t want to lose Greece and potentially other nations from the EU and they renegotiate the debts to make them more realistic. Although I think with the arrogant and bullying attitude we have seen so far this is unlikely.
Process of default
So let’s assume a default and exit from Europe. In fact they have already defaulted… the vote on Sunday will be known by Monday, the banks are closed on Monday 6th July which will allow for the counting and my prediction is a resounding ‘No’ Vote. Afterall, they have tried the EU solution for over 5 years and things are still worse and not looking up. So why keep flogging a dead horse as they say…
From here I think the banks will remain closed for the week. I wouldn’t be surprised if secretly the Drachma has already been printed by the billions. This money will be distributed and the following Monday banks will open with the new currency. Make no mistake if this happens the whole system will be in total turmoil and meltdown. Greek will be a basket case for 3 to 5 years, shunned by Europe but it will recover a lot quicker than it would if it stays in the euro and tries to pay off the debt.
So watch out for the following dates 6th of July, 13th July, 20th July or 3 months, 2 years or perhaps and only if the EU stop being bullies, never, but this would take then to renegotiate the debts.
In 2008, the country Iceland defaulted on its debts, countries like Britain and Holland lost £4.8 billion, many people had placed their money in Icelandic banks lost their money. Putting aside the cost to these people the country less than 5 years later is growing strongly and is poster boy example of a successful default.
You see not all defaults are bad for everyone. Most of the time when countries default because they cannot fund the debt repayments they come back stronger a lot quicker than the media will have you think. Iceland’s success story hasn’t really made the mainstream media as they don’t want you to know that this is exactly what could happen (and needs to) in Greece.
The human cost is often overlooked after 8 years of austerity a whole generation of youth (youth unemployment is at 60%) have never known a job, 18-year olds are now 26 years old and missed almost a working decade, the social cost is huge and will play out over the coming decades.
What does a Greek exit mean for property investors?
So what does it all mean to us as investors in UK and Europe. Well besides cheaper holidays to Greece due to a devaluing of the new currency it won’t actually mean a huge amount. As investors we cannot influence the decision and realistically apart from financial markets becoming very volatile over the coming months, the Greek default isn’t big enough to take down the entire system unless everyone in the EU decides to jump ship and make a go of it. This is unlikely to happen though.
Oh, in case you didn’t read between the lines, my advice for anyone Greek is: vote a resounding ‘No’.
Call the team on +44 (0)207 923 6100 if you have any questions.
Live with passion and fun,