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Should I be worried about the Greek debt crisis? How will it affect me?


If you have stocks in an investment portfolio, it may have affected you already. The expectation of a Greek default has depressed stock markets all over the world, most likely lowering the value of what you own in your little corner of it. But as long as the financial drama that is unfolding remains “the Greek debt crisis” and not “the European debt crisis,” the impact is likely to prove fleeting. A Greek default is all but assured and assumed. That means that the event is likely to be accounted for in stock prices already. Once a default occurs, possibly in the next few weeks, it could provoke only limited further selling, if any, and because markets are famous for detesting uncertainty and a default would alleviate it, a rally might ensue.
What if contagion sets in? If Greece defaults and bond investors decide that it raises the odds that other countries in the region will follow suit, then it’s a different story, one that indeed should worry you. Portugal and Ireland are mired in massive amounts of debt, and their economies are growing too slowly to provide the tax receipts needed to continue making payments without great difficulty, so contagion is not out of the question. If one of those countries defaults, possibly joined by Italy or Spain, which are somewhat better off but also much bigger, then the threat to European treasuries and to commercial banks on both sides of the Atlantic – the ones that are owed billions by governments in those countries – will go up substantially.
Stock markets probably would not take the news of such a development well, although the possibility of it may be priced into stocks, too, to some extent. In recent days, moreover, the prospect of wider defaults appears to have concentrated the minds of European leaders. The next few days and weeks are likely to be filled with uncertainty, but the odds are rising that some sort of financial firewall will be erected to protect banks and treasuries. If it succeeds, it probably will be too late to save Greece but not too late to spare your portfolio from further losses.
-Conrad de Aenlle