Greek riots make global market blues even bluer
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Images of riot police clubbing protesters through a fog of tear gas in Athens rammed home the severity of the Greek crisis to investors globally on Wednesday. With a vacuum of good news in the United States or China, it’s not surprising to see risky assets get hammered. The odd dot-com IPO aside, there’s little to bolster confidence.
The S&P 500 fell 1.7 percent as the euro dove below $1.42 and oil futures knocked $4 off the price of crude. The safe haven of U.S. Treasuries, meanwhile, shaved more than 0.12 percentage point off the yield on 10-year bonds, pushing it back below 3 percent
It wasn’t long ago that investors thought the worst was behind them. The biggest challenge was supposed to be exit strategies. The violence in the Greek capital, perhaps even more than Prime Minister George Papandreou’s offer to step down, reminded investors that concepts like default and austerity don’t always make the world, or markets, more stable.
Investors worry about Greece because a default, if it happens, won’t happen in a vacuum, thanks to its card-carrying euro zone membership. While banks have had ample time to reduce their exposure to all things Greek, default — if it were to happen — is untested in the single currency. In markets, unprecedented events can have unforeseen, and sometimes, very ugly consequences, especially when countries — like banks — are so integrated with their peers. Moody’s Investors Service, in fact, put several French banks on watch for a downgrade, due to their Hellenic exposure.
The sovereign debt crisis, however, isn’t new. But the latest developments come at a time when headlines in the world’s three largest economies have been particularly glum. The United States seems mired in yet another soft patch, China’s red-hot growth engine is sputtering and Japan is trying to emerge from a devastating earthquake and tsunami.
That could mean that sharp moves across global assets, like those that prevailed on Wednesday, are overdone. If the United States were cranking out new jobs, for example, it’s less likely that rioting Greeks would hold so much sway over markets in New York. Put it all together, though, and it’s hard to be too cheery.