No End To Greek Crisis In Sight

LONDON – As European authorities hammer out a deal in Greece and the markets rebound on a fresh wave of optimism, industry experts have questioned whether an agreement would even bring an end to the crisis.

Meetings over the Greek drama have resumed today 22 June with specific items on the agenda such as pensions and VAT rises, and the market appears confident a deal could be hashed out as soon as this week.

The two Europe-listed Greek equity ETFs' long-term track records have been weighed down by years of uncertainty following the Eurozone crisis of 2011, and investors would have lost a fifth of their money in five years. The Lyxor FTSE Athex 20 UCITS ETF (GRE FP) is up over 2.4 percent in three months, but fell 22.5 percent over five years. Similarly, the Alpha FTSE 20 Athex 20 Domestic Equities UCITS ETF (AETF) has fallen more than 20 percent over five years.

Research today by Capital Economics presents a more cautious view. Jonathan Loynes, chief European economist, wrote that the deal would need to come together quickly to avoid Greece defaulting to the International Monetary Fund at the end of this month and stem outflow of deposits from banks.

"[…] it is far from clear that any debt relief agreed as part of the deal or afterwards will be anywhere near big enough to put a sizeable dent in Greece's debt mountain," he said.

Debt Write-off Needed

In fact, Capital Economics data suggests that a debt write-off as much as 50 percent is needed to bring Greece's debt to GDP ratio back to "a sustainable level".

"We remain unconvinced that such a write-off is ultimately compatible with Greece's continued membership of the currency union. In short, some sort of deal may finally be on the way, but it is unlikely to bring the Greek crisis to a decisive end," added Loynes.

The Greek drama has swamped news headlines this year, since the country voted in anti-austerity party Syriza in late January, which sent markets spinning on speculation about what would happen to its $265 billion plus bailout program.

Stelios Papadopoulos, political risk analyst at think tank Global Risk Insights, commented that the Greek debt debate has come to a standoff, with the IMF walking out of negotiations and the Greek prime minister writing editorial in French newspaper Le Monde.

"The gist of the strategy seems to be a Greek default that will pave the way to an agreement with two things: First, an economic crisis in order to put pressure on German public opinion to consider a debt restructuring. Secondly, an economic crisis in Greece which might lead to a new Government that might prove more amenable to Troika demands," he wrote.