Andrew Morris, managing director of Signature, says an orderly default by Greece has already been priced into the market.
Commenting he said: “The recent extreme movements witnessed in equities, commodities and currencies demonstrate there is much work to do. The results of the G20 meeting can be seen as both reassuring and worrying at the same time. Reassuring by virtue of the fact that big policy action is being considered, but worrying in that true to form, firm policy direction was not forthcoming.
“The hastily arranged meeting concluded with no decision and the next meeting is not for another six weeks, in Cannes, France. Leading to some commentators, including our own George Osborne, calling for “Six Weeks to save the Eurozone”.
“Unfortunately finance ministers are not known for speedy decision making but from a markets perspective, I would say it is closer to being 6 days than 6 weeks.
“As we stand today, there is a strong argument that an orderly default of Greece has already been largely priced into the market. The question is which ones – Eurozone sovereign debt, equities or currencies? The first two we can feel pretty certain about, although the look and feel for the € on-going, is rather unclear.
“Whether a desired, orderly default can be achieved, is a very different matter.
“A workable solution from a shock and awe approach by policymakers would see the immediate solvency issues within the Eurozone cease and take us back from the brink of a meltdown. This would clearly restore confidence to increasingly anxious markets.
“The probable impact of a disorderly Greek default is yet to be fully priced in, as the contagion, which could result, has the potential to be catastrophic. Particularly given the effect on the other troubled sovereigns and the possible decimation of the European banking system.
“This is why any policy action needs to be substantial enough that the likes of Portugal and Ireland are ring-fenced, if such policies are not forthcoming or if investor’s don’t view them as credible then other countries will almost certainly be dragged further into the mess.”
