With the Academy Awards coming up this Sunday, we can’t help drawing comparisons between the movies and real life. This week, with Greece involved in a eurozone showdown over financing, we can think of no better comparison than the 1952 Oscar-winning Old West gunfight film, “High Noon”, with Gary Cooper. Greece has been headed for a “High Noon” scenario for some time, with its economy contracting for six straight years. But that gunfight was assured when it opted for a new leftist government.
The newly-elected government, led by fiery leader Alexis Tspiras, ran on a radical platform of anti-austerity measures and a promise to alter Greece’s twin bailout packages signed by the previous administration. The austerity measures have caused Greek unemployment to rise sharply to around 26 percent, and youth unemployment is at almost 51 percent. Greek creditors are not willing to abandon the terms of the original bailout packages but are willing to discuss an extension for now. Greece’s new government wants to renegotiate and soften the terms of the original austerity packages.
Why is a country of 11 million people that generates less than 1 percent of total eurozone GDP so important for the markets? Despite two bailout packages for Greece over the past five years, it is running out of money again. Other countries in the eurozone that have received bailout packages are watching these negotiations very closely. The potential for Greece to exit the eurozone is a real possibility and could pave the way for other countries to follow, causing more chaos, contagion and perhaps a break-up of the euro.
It’s important to note, however, that so far, out of the 19 eurozone countries, it’s pretty much 18 against 1 on this issue. Even southern European countries like Spain, Portugal, and Italy have so far been united with Germany to keep the pressure on Greece.
Our View: We believe that some resolution will still be reached. Most Greeks want to both stay in the eurozone, and get easier terms on the country’s debt, but clearly that sentiment can’t last.
|The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.|