The standoff between the European Central Bank and Greek government came to a tipping point early last week when the two sides couldn’t agree on the way Greece should do austerity. The Greek government called a nationwide referendum to allow the people to vote on the ECB’s bailout package but the ECB subverted that vote by refusing to offer additional emergency loans to Greek banks, causing Greece to miss a scheduled payment to the IMF and forcing its banks to close.
The vote went on as scheduled, though, with the consensus opinion the Greek people, frustrated by restricted access to their bank accounts, would vote “Yes” to the bailout package. A “Yes” vote would have led to political change in Greece and a better chance a deal could be reached. Sunday afternoon we learned, however, that the people voted overwhelmingly “No”.
Stock markets worldwide did not like this news as Asian and European markets are sharply lower as of this morning and US futures are down about a percentage point. It is likely that we will see a spike in short-term market volatility as a result of this news.
Markets fear a “Grexit” could destabilize surrounding European countries and lead to a larger crisis, though a Greek exit of the European Union is still not the most likely outcome and the ECB has promised to keep contagion from spreading by generously buying as many of the surrounding country’s bonds as necessary to keep their borrowing rates from rising.
The silver lining in this is that any stock market declines create an attractive entry point for long-term investors. The situation in Greece should have no lasting impact on stock markets and the strategy of your long-term portfolio.