Unless you have been in a coma for the last two years, you’ve certainly heard about the situation in Greece. The financial crisis in Greece has been going on for several years with no solution in site. These headlines have dominated our investment news as long as I can remember. How does it ultimately affect you as an investor in the United States? In my opinion-not much.
Here are three reasons that Greece really doesn’t matter:
1. Small GDP
Greece is about 2.5% of Europe’s GDP (Gross Domestic Product). Every country has a GDP, and the higher the better. So as far as comparison goes, Greece is equal to the GDP of Maryland to the United States. My thought is that the media has made a mountain our of a molehill. Yes it would be tragic if Greece defaults and has a run on it’s banks, but ultimately this country will have to face austerity whether they “vote it in” or not. The trickle down effect will not be felt that much in the U.S. So it’s more about fear rather than the value of Greece.
I was reading an article by Jacob Steinberg in Seeking Alpha, where he shared some examples of how Greek headlines don’t correlate with our markets movements. His point was that the markets aren’t really tracking the Greek Crisis at all. He noted many examples where good news came out of Greece and the U.S. markets declined, sometimes by more than 3%. He also sited examples of bad news coming from Greece and our markets actually rallied. So there is little relationship between the news from Greece and our market indices. I’m not saying that a default wouldn’t cause problems, but there are far more variables that could determine the outcome.
Spain has the 4th largest economy in Europe. Spain would be a larger problem by far. If a default occurred in Spain it would be similar to New York or California’s economy going into default. Spain represents a much larger piece of Europe’s economy and the United States has more exposure to this country. So fixating on Greece for all this time feels like a head fake. Spain has very little avenues for growth and has placed to much emphasis on housing.
I have been telling my clients for months now that Greece really doesn’t matter for your investments or your long-term financial plan. Not because I don’t care, but because most of the U.S. market movement due to Greece has been based on fear. You cannot let emotion dominate how you invest. I wrote about this in a previous post. Investors certainly should not base their plans or investment strategy on Greece. It’s just not as important as our media would like us to believe.