David Miller, Partner at Cheviot Asset Management, believes that whilst austerity measures have been passed, this will not do much to soothe the nerves of investors, who will still be worried about how Greek voters will cooperate with the plans…
Rational investors quite rightly believe that Germany will use its financial strength to restore stability to the Eurozone and that when Greece defaults it will be in a controlled manner. Very similar to when JP Morgan bought Bear Stearns in March 2008. Avoidance of contagion was then, and is now with Greece, the main priority. Unfortunately investors are rather more alert to the issue this time and even the ratings agencies are taking action by downgrading.
The immediate aim is to solve the July debt rollover, and then come up with a longer term solution. More importantly, however, the authorities must ensure that if problems start to surface in other European countries; later in the year, and Spain in particular, that there is a genuine European QE style debt solution involving a lot more than a few billion Euros.
The unknown is whether the Greek voters will cooperate with the politicians plan and timetable. Quite rightly this is what investors are now worried about.
