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Why Investors Cannot Ignore Greece

The Greek debt crisis, the political situation in Athens and their impact on the euro zone are falling off investors' radars, but cannot be ignored, according to one foreign exchange analyst in London.

The Parthenon in Greece
Scott E. Barbour | Getty Images
The Parthenon in Greece

“After over two and a half years, it is all too easy to succumb to crisis fatigue when considering Greece. However, experience shows that it has been dangerous to lose focus on events in Athens for too long,” said Simon Derrick, the head of currency research at Bank of New York Mellon said on Monday.

“While it is easy to dismiss Greece as a relatively minor part of the euro area economy, the simple truth is that it has acted as the canary in the coalmine for so much of what has subsequently happened elsewhere in the region,” said Derrick in a research note in which he predicts another fraught summer ahead.

The new coalition government in Athens is currently attempting to negotiate its next tranche of bailout money with the EU and IMFamid reports Greece’s austerity program is again totally off track.

With the next tranche of aid unlikely to be paid until September, Derrick is warning Athens' finances are on a knife edge.

“By mid August it looks as if Athens will have to hope that it can raise short term money at auctions if it is to continue to pay pensions and state sector salaries,” said Derrick.

“This situation would be awful enough even if the Greek electorate supported the government’s accommodative stance towards the troika’s demands,” said Derrick, who notes a poll over the weekend found over 73 percent of voters want their government to get better terms.

A Moody’s note on Friday indicated Greece’s position has deteriorated materially since the beginning of the year and said it thought the chances of a Greek exit from the euro (related: What Happens If Greece Defaults) had increased significantly.

“Based upon recent developments we would have to agree. Moreover, given the finely balanced political and financial position in Athens right now, the risk remains that something could happen over the next three months,” said Derrick.

Contact Europe: Economy

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