Grexit Referendum Causes More FTSE 100 Turmoil

The latest twist in the Greek debt drama is one that not many of us expected, as Greek prime minister Alexis Tsipras has called a referendum for 5 July to ask his people whether or not to accept the EU’s demands for further austerity.

But a “Grexit” might even come before then, as the ECB has turned off its emergency funding tap and there will be no further emergency daily drips of cash.

That’s shaken European markets, and the FTSE 100 has already dropped 115 points as I write, to 6,639. Just as there is reportedly already a run on ATMs in Athens, so I expect a run on banking shares this week — Barclays and HSBC are only down a little over 2%, but Deutsche Bank is down 5.5%.

Grinding poverty?

If the Greeks fail to tell the EU where to stick its punitive demands, they’ll be capitulating to decades of austerity and the snuffing out of the hopes of a whole generation of Greek youth. The inescapable truth is that Greece is saddled with debts that it can never repay and, with a euro that’s overvalued for the country’s needs, it cannot attract inwards investment and cannot compete in the eurozone market for goods and services.

A No vote on 5 July would being deep pain, for sure, but it would be relatively short-lived. Greece would default, its banks would be technically bust, and capital controls would be needed until the country gets a New Drachma in place and lets it float to its natural low value against the euro.

But in the longer term, once all those bad debts are written off there would be no more punitive interest payments, a weak currency would make Greek exports much more attractively priced, it would be Sizzling Summer Sale time for the Greek property market, and the country would surely become the new hot spot for cheap European holidays.

And the Greek people would be able to enjoy renewed hope.

Which way?

Will Greece choose independence? It’s hard to say, as Mr Tsipras’s Syriza party only held 36% of January’s vote. And though there’s been a big backlash against the austerity regime, the Greek people have traditionally been strong supporters of remaining in the euro.

But they now have to make that very hard choice, and I do hope they go for their own best long-term option rather than voting to continue their current pain indefinitely.

But the decision might be taken away from Greece anyway. Over the weekend, finance ministers from the eurozone have rejected an extension beyond the end of June, and with emergency ECB funds already stopped, Greek banks will be closed all week and some currency controls are already in place. Do EU leaders really want to be seen as the bad guys not allowing the Greek electorate to have their democratic say just because of a few more days? This, sadly, is euro-brinkmanship at its worst.

UK investments

What should we do as UK and European investors? Really just ignore the short-term market gyrations and use whatever fallout we get to look for longer-term bargains in fundamentally sound companies — and you could do worse than trawling round a few travel companies looking for exposure to Greece.

If you're worried about your FTSE 100 shares, just stay calm and stick with an investment approach that we know can bring great long-term rewards.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended shares in Barclays and HSBC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.