The worsening Greek financial crisis became a global problem Monday with stocks around the world falling following a weekend of troublesome bailout negotiations.
The decline in global stocks came after Greek officials announced plans to close its banks and impose restrictions on cash withdrawals to try to prevent the current financial crisis from getting worse. The decision and news that the bailout negotiations faltered over the weekend caught investors around the globe off guard.
“Most people’s consensus forecast was for them to muddle through with some kind of a deal,” Kymberly Martin, the senior market strategist at the Bank of New Zealand, told The New York Times. “So it has taken people a little bit by surprise.”
The problems are being felt not just in Europe but in the United States and Asia as well. Wall Street, China, Germany, France and Britain opened with slow or declining stocks according to USA Today. Greece’s stock market will remain closed this week along with the country’s banks.
“The sudden turn of events over the weekend has pushed both the future of Greece and the eurozone into uncharted waters,” Salman Ahmed, a portfolio manager at Lombard Odier Investment Management, told The Wall Street Journal.
The decision by Greek officials to shutdown the banks came after the European Central Bank decided not to expand additional emergency funds to the country. The country has faced financial uncertainty and extreme debt for years and has relied on other European countries and the global economy to stay afloat. Much of the problems were caused by the country’s bloated welfare system.
The country may access additional assistance so long as it accepts austerity measures demanded by the International Monetary Fund, European Central Bank and European Commission. Greek Prime Minister Alexis Tsipras said his country would hold a July 5 national referendum to decide whether to accept the measures, USA today reports.
If Greek officials decide not to accept demands from the international community, the country is likely to face huge problems. The Greek government will be cut loose from international rescue loans Tuesday for the first time in more than five years. The Wall Street Journal speculates that will likely lead to the country defaulting on a €1.55 billion payment to the International Monetary Fund.
Investors still have plenty of options to avoid loss. Many have already begun looking for safe assets such as government bonds in stable nations such as the U.S. and Germany.
Though the weekend developments caught many off guard, some investors are not at all too worried noting the turmoil in Greece is unlikely to hold back a broader economic recovery in Europe.
“The market reaction so far I would see as quite benign. Last week [European stocks] had a very good week and we are reversing that,” Ewout van Schaick, who oversees assets for NN Investment Partners, told The Wall Street Journal.
If Greece is unable to solve its financial problems, its future in the Eurozone and even the European Union may face uncertainty.
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