Should U.S. Investors Care About the Greek Crisis?

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Should U.S. Investors Care about the Greek Crisis?

Jul 01, 2015

Europe

The Greek drama has gone from bad to worse. On June 30, Greece became the first developed nation to miss a

debt payment to the International Monetary Fund. On the same day, a last-minute appeal by Greece for an

extension of its second bailout failed as well, putting in jeopardy access to billions of euros in funding.

As the Greeks face increasingly dire circumstances, with banks and the stock market shuttered for a time and

ATMs dispensing limited cash, a day of reckoning is coming. On July 5, the people will be asked to vote in a

referendum whether or not they will accept creditors’ latest loan terms. An affirmative vote means staying in the

eurozone; a “no” vote could hasten a Grexit.

While the eurozone was in turmoil over Greece, U.S. markets had a much more muted reaction. On the first two

days of Greek bank closings, the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite fell by 1.8%

each. Compare that to the Euro Stoxx 50 Index, which tracks the shares of eurozone companies; it fell by 11%

over the same two days while the Global X FTSE Greece 20 ETF, which tracks Greek stocks, plunged by 19%.

U.S., German and U.K. bond prices did go up on the day Greek banks first closed, as investors fled to safer

havens. But gold futures for August 2015 delivery are down. Overall, the 2015 response was more tepid than the

rout in 2012, the last time fears arose about a Greek default and eurozone exit.

“Greece is a relatively small actor in the world financial system.” –Jack Guttentag

So what impact will the Greek debt crisis have on U.S. investors? “It’s not going to affect us very much,” says

Jack Guttentag, Wharton emeritus professor of finance. “Greece is a relatively small...