Many so-called experts believe that the huge financial problems developing across Europe could fuel another worldwide financial crisis. The media has recently been focusing on the European bailouts and existing austerity measures are being debated by the European Union. A new buzzword “Grexit”, has entered into this conversation now that some experts believe Greece could secede from the European Union dealing another blow to the weakened global economy. Greece’s leftist “Syriza” party wants to defy austerity measures; this move might compel the European Union not to bail out Greece and let the country drop out of the main European Economy (See “Greek Syriza leader Tsipras attacks EU and Merkel,” BBC News). The Greek people have even been withdrawing massive amounts of Euros in fear of going back to their native drachma.
Experts are divided on what the outcome would be if a “Grexit” comes to pass (See “Is Greece the Lehman of 2012,” Paul Monica, CNN). Some experts see a Greek departure as a small and isolated blow that will have no lasting effects on the global economy; however, other leading experts see a more connected global economy where a “Grexit” can have far reaching and devastating consequences.
“In a worse case scenario, if contagion spreads from Italy to Spain, then the costs may be too large to rescue them and recapitalize European Banks,” said Dr. Robert Shapiro, chairman of Sonceon, an economic advisory firm in Washington.”
Greece’s departure could lead to the departure of other financially troubled European countries like Spain, Portugal and Italy in much the same way that the world’s largest banks fell like dominoes one by one in 2008. Dr. Shapiro believes that the complex financial relationships between the big banks and Greece through instruments like credit default swaps could cause an economic collapse similar to the 2008 fall of Lehman Brothers. During this financial collapse many investors endured significant damages from both a huge drop in the stock market and from the failure of many exotic financial instruments. The only certainty in such volatile times is that no one can be certain what will happen next in Europe and the global economy. Invest wisely.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.