Interesting perspective on the Greece situation from Knowledge@Wharton.
The debt crisis in Greece is quickly turning into a Greek tragedy. Banks have closed for a time, ATMs have cash limits and the stock market has not opened. Greece’s bailout expires on June 30, the same day its $1.8 billion debt payment is due to the International Monetary Fund. Greece reportedly will not pay it. Prime Minister Alex Tsipras has called for a July 5 referendum on the latest bailout terms by the IMF, the European Central Bank and the European Commission.
While the situation is dire for the Greeks, Wharton finance professor Jeremy Siegel says the crisis will likely be contained because of freer lending to banks in other countries. And if Greece does exit the European Union, he believes it will strengthen the eurozone. Siegel points to the euro gaining ground even as news of Greek bank closings led to expected declines in the European capital markets — which were to a lesser extent reflected in the U.S. markets as a result of a flight to quality.
As for the impact of the crisis on the Fed’s intention to raise the federal funds rate later this year, Siegel says the U.S. central bank will take the situation in Greece into account if it continues to be a problem months from now. But he does not believe the debt crisis will present enough anxiety for the Fed to derail an increase in the overnight bank lending rate. Siegel expects the rate hike to come in September.
