Since the Great Recession in 2009 the Greek Government has been in turmoil. During and subsequent to 2010, Greece received a series of bailout packages from the European Central Bank (ECB), International Monetary Fund (IMF) and other Eurozone countries. These loans rescued Greece from the possibility of a sovereign default but required the Government to implement far-reaching austerity measures such as structural reforms, a debt exchange, and the privatisation of some government assets. It was the opinion of Greece’s creditors that a rigid austerity programme would put the Greek economy on a sustainable track. The country’s debt burden is roughly 174 per cent of 2014 GDP.

The Greek government tried to implement the required measures. However, the austerity programme has also been blamed for the massive contraction in the Greek economy, a tripling of the unemployment rate and a rapid rise in poverty. Nevertheless, a different perspective considers these struggles as the consequence of Greece’s historically excessive and hidden fiscal deficit spending. Whatever the reason, turmoil in Greece continues. After rising social unrest and a change of Government in early 2015, the country renounced its commitment to the austerity measures.

In the first quarter of 2015, the new Government sought to re-negotiate the terms of its bailout package with its creditors but quickly found that they had very little bargaining power. The creditors refused to consider requests for debt forgiveness. However, they did grant a four month extension on debt repayment. The objective of the extension was to allow the Greek Government to develop and implement reforms and policies that met the approval of the main creditors — the European Commission, the ECB and the IMF. However, Greece’s initial reform plans were rejected and the creditors refused to disburse new funds to cover Greece’s upcoming debt payments.

A slowdown in tax revenues and an increase in the pace of bank withdrawals further compounded Greece’s cash crunch. The Government subsequently ordered local public entities to transfer cash to the Bank of Greece — to allow the Government to make critical payments to pensioners and public sector workers. The contraction in the Greek economy in the first quarter of 2015 has been attributed to the tight liquidity that resulted from this cash crunch.

Instability in Greece has fuelled volatility in the European capital markets and aided the depreciation of the euro currency. This has created opportunities (and risks) for investors in the market. For example,

1. The European stock market has rallied significantly despite the Greek turmoil. The Euro Stoxx 50 index rose by as much as 27.46 per cent between January and April 2015. The latest instability in Greece has dampened this rise (year-to-date performance is roughly 18.14 per cent as at May 13, 2015). This could provide an entry point to the right investor. However, the index is likely to continue to display gut-wrenching levels of volatility, especially until the Greece economy finds a firm footing.

2. Over the past twelve months, the Euro has declined from a high of ¤1.3715 / USD in May 2014 to a low of ¤1.0496 / USD in early March 2015. As at May 13th 2015, the euro was roughly ¤1.351 / USD. Investors shorting the euro or going long the USD have benefited from these currency movements.

Both these phenomena (the depreciation of the euro and the improvement in the stock market performance) have also largely been attributed to the ECB’s programme of quantitative easing. Investors have the opportunity to selectively pursue attractive investment opportunities resulting from the increase in volatility and the change in Eurozone monetary policy.

Marian Ross is Assistant Vice President, Business Development and Lisa Minto is a Personal Financial Planner at Sterling Asset Management Ltd. Sterling is a licensed securities dealer and provides investment management and advisory services to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: info@sterlingasset.net.jm or visit our website at www.sterling.com.jm

CAPTION

Sterling report logo with photo of Marian Ross

ATHENS, Greece — Greek Finance Minister Yianis Varoufakis (left) and his wife, Danai Stratou attend the Economist conference entitled “Europe: The comeback ? Greece: How resilient?” in Athens on Wedneday. Greece’s left-wing government will not abandon its refusal to cut salaries and pensions in tough talks with its EU-IMF creditors, Prime Minister Alexis Tsipras said. (PHOTO: AFP)

ATHENS, Greece — A man walks past graffiti sprayed on an abandoned construction site in central Athens on Wednesday. (PHOTO: AFP)