Essentially the country is broke and the government is moving ever closer to defaulting on its debt.  Dramatic market moves last week underlined the serious nature of the problem and Standard & Poor’s rating agency downgraded Greek government bonds to CCC, the lowest for any government in the world, resulting in yields rising substantially.

It is a complicated situation, with an initial tranche of €12bn in aid from the EU and International Monetary Fund due to be paid to avoid default on debt payments in mid-July.  Part of the problem has been the failure of Eurozone finance ministers to reach agreement and this has also weighed heavily on markets around the world.  There are problems with the timing of repayments to Greek bondholders as well as the terms being proposed.  These relate to the proposed medium-term fiscal strategy, which sets out a renewed round of austerity measures (amounting to 12% of GDP) as well as more detailed plans to sell off €50bn of state-owned assets, both of which have proved to be deeply unpopular with the general public.  The longer the uncertainty persists, the greater is the effect on markets.  There is relatively little risk of near-term default, but it is also becoming apparent that there appears to be little hope of the EU putting measures into place that will permanently resolve Greece’s problems: it may be that a major default is inevitable and that Greece even contemplates leaving the single currency.  This is, however, pure speculation at this stage and negotiations seem set to grind on.

The situation in Greece is highly significant in that it could conceivably spill over to other EU member countries, with Ireland, Portugal, Italy and even Spain being mentioned.  This in turn leads to speculation that the single currency might be at risk of break-up.  It is not the first time this has surfaced and it probably won’t be the last.  Such speculation is just that: a collapse of the Euro would have massive reverberations and would be devastating to the Eurozone as a whole but political pressures are mounting in Germany.

With such dramatic events overshadowing the Eurozone and indeed world markets, it seems hard to believe that any positive comments may be made concerning stockmarkets.  However, it is easy to tar everything with the same brush and overlook opportunities.  Economic issues for the area as a whole do not necessarily spill over into the corporate world and with uncertainty and unrest likely to continue over the summer months in the western economies as a whole, it may well prove to be the case that we should ignore the “sell in May and go away..” maxim and look for opportunities over the traditionally quiet months.

For further information, please contact Cathy Dixon, Director, Investment management.

This does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested.  The views expressed are those of the author and not necessarily of Cunningham Coates Stockbrokers.