Monthly Market Report - March 2015

25th February 2015

With commentary from David Stevenson

Well the Greeks went and did it! Syriza is now firmly in power and the world's global financial markets seem to have survived an electoral snub by local voters against austerity in Europe and pro-creditor policies. Quite how the negotiations will unfold is frankly anyone's guess and the rise in yields on Greek debt highlighted in this note suggest that many investors think that a Grexit (a short hand term for a Greek exit from the Euro) has become much more likely. Yet it's also true that most investors think that a deal on debt is likely though not necessary probable at this stage but I find myself drawn to two very contrasting measures when looking at the Greek situation. The first is from the World Bank and looks at interest payments on the huge weight of Greek debt versus the government's revenue base. The idea here is that although Greece may be sagging under debts that amount to more than 150% of their GDP (ours is around 90%), the interest payment on those debts are actually perfectly manageable. These World Bank numbers are a bit out of date (from 2012) but they suggest that the Greek interest tab is running at 11.5% of revenues compared to 13.5% in the US and 8% here in the UK. I'd hazard a guess that the interest servicing bill is likely to fall even further, suggesting that Greece can in fact afford its payments.

The other scarier statistic is that if you look at a country's debt level versus its total tax revenue, Greece is currently the world's second worst offender - total debts are running at 475% of total revenues, with only Japan in a worse position at a mind boggling 900%. The obvious answer to Greece's problems may be just to collect more taxes but let's leave the point alone! The bigger conclusion is that Greece will survive, will stay in the Eurozone and won't drag the entire financial system into a pit of despair!

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