Should I get nervous about the Greek problems?
Almost all of the national press money pages had some comment on the Greek crisis and its likely impact on UK citizens.
One article in the Telegraph explored the likelihood that the mortgage rate could change as a consequence. Summarising the article, it could send mortgage rates up or down, depending on the scale of the Greek default, whether it creates another credit crunch and any impact on the UK gilt rate. (http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11707796/How-could-the-crisis-in-Greece-affect-UK-mortgage-rates.html).
As a rule of thumb, uncertainty will usually send markets down and interest rates up as traders and bankers try to price in changes as soon as they can. In the short run these changes can be overblown before they are moderated by experience. The markets have been expecting a Greek implosion for some time, so the final impact in the UK may not be too great.
In the interim, what about people about to go on holiday there? Another article in the Telegraph suggested that cash would be king. One major factor is the banks are currently closed and ATMs get emptied quickly, so travellers’ cheques and credit cards may be of limited usefulness. (See the full article at http://www.telegraph.co.uk/finance/personalfinance/11715574/Greece-crisis-12-questions-about-your-personal-finances.html).
What no one knows at the moment is how this will play out. Classical economics suggests that we will have the return of a Greek currency, a massive revaluation and a violent credit squeeze in Greece followed by slow localised growth as a new equilibrium is achieved. Unfortunately there is a big political component here; there appears to be reluctance to leave the Euro, which would make revaluation impossible, so the Icelandic recovery model will not work. The Irish case required massive internal political will, which is not available in Greece, so we are in uncharted waters.
For the UK, there is undoubtedly going to be a lot of noise and fury, but as Greece is economically insignificant here, any real impact is going to be via the European Union and the ECB, (European Central Bank).
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