Greek debt too small to cause second GFC
The sovereign debt issue in Greece is unlikely to lead to a second round global financial crisis, but public debt crises in advanced countries are likely to be a recurrent problem.
Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, said that although there is a high risk of a broader public debt crisis, the amount of debt involved in southern European countries such as Greece, Spain and Portugal is small compared to the trillions of dollars involved in the US mortgage market.
The exposures are more transparent and the risks better understood now than they were during the sub-prime crisis, he added.
Global monetary policy is easier now, and the global economy is also much stronger now than in 2008, he said.
The €720 billion bailout announced by the European Central Bank also shows that policy makers are determined to get on top of the problem and put and end to irrational contagion, Oliver said. It also means Greece is unlikely to default in the short term, he added.
“If the package is successful in stabilising the public debt situation in Europe it should help to contribute to a recovery in global share markets once the dust settles from the current correction,” he said.
“The European support package has likely provided a bit of breathing space to troubled economies,” Oliver said.
“However, it provides a longer term reminder that high public debt levels will be a key constraint on major advanced economies in the years ahead as well as being a key risk factor to keep an eye on.”
Recommended for you
Inefficient data processes and systems mean advisers are spending over half of their time on product implementation and administration at the expense of clients, according to research.
With the regulator announcing its enforcement focus for 2025 last week, law firm Hall & Wilcox examines the areas which have dropped down the list in priority for the regulator.
South Australian financial advice and accounting business Perks has extended its paid parental leave program from 12 to 26 weeks, putting it on par with big four firms.
Mason Stevens has tapped Investment Trends’ head of growth, alongside two other hires, to bolster its distribution team.
