Stocks Sink on Greece, Euro Worries
"Hang on...didn't Europe bail out Greece already?" That was the question this morning from one of my favorite CBS Radio producers. Yes, we're doing the Greece thing again.
Over the weekend, Greece announced a new $2 billion tax on real estate to meet deficit reduction targets imposed by the EU, ECB and IMF, and in turn allow Greece to qualify for its next $11 billion loan payment. The tax is supposed to make up for the revenue shortfall due to the sharper than expected contraction in the Greek economy. (Note to austerity fans: when governments cut, economies shrink. Greece's finance minister just revised down the 2011 forecast from a 3.8 percent contraction to 5.3 percent.)
This followed Friday's unexpected resignation of European Central Bank chief economist Jürgen Stark, which was seen as a sign of deepening divisions over how to solve Europe's economic problems, as well as rampant rumors of an impending Greek default.
Meanwhile, stronger European economies, like Germany, are losing patience with all of this Greece stuff. Philipp Roesler, Germany's economy minister, said an "orderly default" for Greece could no longer be ruled out and branded the country's deficit-reduction measures "insufficient". Additionally, there are whispers that German finance minister Wolfgang Schauble has said to have told German banks and insurance companies to prepare to take big losses on the Greek debt they hold.
Here's the problem: Germany can study options to get rid of Greece, but the European Union is like the roach motel: countries can get in, but there's no mechanism to get them out. This is why economists like The New York Times' Paul Krugman believe that the "euro is now at risk of collapse. ... At this point countries in crisis account for about a third of the euro area's G.D.P., so the common European currency itself is under existential threat."
All of this worry over Greece is spooking investors. European stocks are getting shellacked this morning (down 3-4 percent), hitting a 26-month low. French banks, which have large exposures to Greek debt, are getting hit the hardest.
With US stock markets also pointing to a lower opening, here's three bits of good news:
- As panic ensues, investors are pouring money into the treasury market, driving down yields to historic lows. That means mortgage rates are sinking, so get busy on the re-fi, Mr. and Mrs. Procrastinator!
- If you are a retirement plan participant, you are buying shares at lower levels--automatic investing is forcing you to buy low.
- As always, a well-diversified, balanced portfolio will help shield you from the extreme volatility.
