ShareThis Page
World

Greek default drama plays out

| Tuesday, June 30, 2015, 11:36 p.m.

The debt crisis in Greece is grabbing headlines across the globe and sparking fears of investor panic, but reactions in the United States have been relatively muted and experts doubt there will be a significant financial impact here.

Their reasoning: Greece is a small country with an economy slightly bigger than that of Connecticut, the third-smallest state, and American banks and companies have limited exposure there. The country accounts for less than 0.1 percent of U.S. exports and $12 billion in direct investments from American banks.

The biggest fallout could come if fears about Greece spread to other European countries that are struggling with debt, stoking worries about the global economy and shaking investor confidence in financial markets. U.S. markets have largely avoid panic selling so far.

The Standard & Poor's 500 index, one of the broadest barometers of the domestic stock market, fell 2.1 percent Monday — its worst one-day drop this year. But by Tuesday, markets stabilized and the S&P gained 0.3 percent.

A flurry of diplomacy to bring creditors back into talks, after five months of inconclusive negotiations brought Greece close to leaving the euro currency bloc, failed to prevent Greece from becoming the first developed country to default on an International Monetary Fund loan. It missed a $1.8 billion payment deadline.

Eurozone finance chiefs decided not to extend a new financial lifeline despite last-minute overtures from the Greek government. German Chancellor Angela Merkel ruled out negotiations until a referendum is held on whether to accept the austerity deal proposed by creditors to keep alive a bailout program it has relied on for five years.

“The Greek drama is very fluid,” said John Augustine, chief investment officer at Huntington Bank in Columbus, Ohio. “We are aware that it does cause volatility in financial markets in a global economy.”

Augustine said stocks will probably take some wild swings in coming days and weeks as the situation plays out.

There could be indirect impacts in the United States, ranging from the Fed delaying interest rate hikes to the stock market displaying greater volatility and the dollar strengthening and hurting exports.

“There is now a lot more uncertainty in the global economy than there was,” said Norman Robertson, economic adviser at Smithfield Trust Co., Downtown. “This uncertainty may persuade the Fed to delay raising interest rates.”

Louis Stanasolovich, CEO of Legend Financial Advisors in Pittsburgh, said he expects Greece “could rattle markets for a couple weeks and then go away.”

As global markets experience increased volatility, foreign investors could look at the United States as a safe haven for their money, which could cause the dollar to strengthen relative to other currencies, Robertson said. That could hurt exports by American companies, he said.

Asian shares rose Tuesday as Chinese stocks broke a punishing three-day losing streak. European shares fell Tuesday for a second straight session.

Greeks are set to vote Sunday on the referendum. Greek Prime Minister Alexis Tsipras has urged a “no” vote, which observers say would be a de facto vote to abandon the euro as the country's currency.

There are concerns that such a move could spread to other European countries that are financially weak, such as Italy, Spain and Portugal, said Gus Faucher, senior economist at PNC Bank in Pittsburgh.

“The concern is contagion,” he said. “A default causes problems for other eurozone countries.”

But, he added, “the likelihood of that happening is small.”

Experts say that investors are not panicking about Greece because the damage from the default is contained primarily to the European Central Bank, the IMF and a few European banks.

America's economy is stronger than it was several years ago and can more easily absorb the effect of an economic crisis outside its shores, some experts say.

“Fortunately, our economy has a better tone going into the summer,” Augustine said. “Employment is up, consumer confidence is up.”

But Robertson cautioned that it “is very hard for anyone to say how events are going to play out.” And contagion could spread more easily than some observers think.

“While Greece is the epicenter, other countries also are in varying degrees of trouble,” he said. “There is this contagion danger, and that's the big risk.”

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com. The Associated Press and Reuters News service contributed.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.

click me