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The real threat that a Greek exit poses to the eurozone

The real threat that a Greek exit poses to the eurozone
The real threat that a Greek exit poses to the eurozone



I was on holiday last week, and out of touch with the office.

Just before I left, my colleague Merryn sent me an email saying: "I can't believe you might miss Grexit!"

I'll admit that I felt a stab of anguish. I've been covering this interminable story for three years or more now, and I'd hate to miss the denouement.

I needn't have worried. The Greeks have yet another 'last-minute' deadline this week. And it'd be a braver man than me who bets on it being the final one.

But are we all getting a little too complacent?

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Another day, another crisis in Greece

There's a eurozone emergency meeting (funny how that phrase just trips off the keyboard these days) today. It's yet another '11th hour' attempt to reach a deal with Greece. I have no interest in running through the arguments again, and I'm sure you don't either. But just in case, here's the potted version.

Greece can't pay back the money it owes. To get debt relief from the rest of Europe, it needs to reform its economy. But Greece doesn't want to reform its economy. Nor does it want to leave the euro, which is very likely to happen if it defaults on its debts.

So either one side or the other blinks first, or Greece leaves the eurozone. Same story as it's been for the last three years or so.

And markets, apparently, really couldn't give a damn what Greece does either way. As John Authers notes in the FT, the euro is "virtually unchanged since January's Greek election sparked this phase in the crisis".

Is that wise?

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What could trigger a 'Minsky moment'?

Markets are complacent for the reasons I outlined last Monday. The simple truth is that we've been through any number of potentially nasty scenarios since the recovery from the financial crisis began in March 2009. So far none of them has made a dent in the bull market.

Investors have gone from raging scepticism to a belief that central banks can walk on water. Even the bears now exude a sort of resigned acceptance – things look ugly, but it's hard to see what can upset the apple cart while central banks remain in control.

Given that backdrop, how are you meant to invest? You can argue that the market is irrational, but shorting it is financial suicide when the world's central banks remain in printing mode. The market saying: "Don't fight the Fed" has never been proved so right as over the last six years.

And you can fret all you want about Grexit, but Greece has been on the point of abandoning the eurozone for at least three years now. If you'd spent all that time sitting in cash, say, waiting for the next big one, you'd have missed out on plenty of gains.

Markets can be forgiven for feeling a bit of crisis fatigue – lord knows I'm most definitely at the stage where I just want it to be over with so we can talk about something else.

Trouble is, as I also pointed out last week, this is why Hyman Minsky was right. It's all about psychology. After a crash, we're all jumping at our own shadows, and every time the market cries 'wolf!' we rush for safety.

But the market keeps calling 'wolf!', and nothing happens. And eventually we find ourselves ignoring the cries of 'wolf!' – instead, we start to head for the most dangerous patches of pasture we can, because they offer the best pickings.

Then one day, the market cries 'wolf!' and this time it isn't wrong. And by that point we've all wandered so far from safety that the result is sheer carnage.


Read more articles from MoneyWeek:

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Greeks on a Possible Grexit: 'We'll Have a Big Problem'
Greeks on a Possible Grexit: 'We'll Have a Big Problem'


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