Greek default drama plays out
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 email@example.com. The Associated Press and Reuters News service contributed.