Jeffrey Kleintop, chief market strategist for LPL financial, sees a eurozone without Greece. That said, he believes that a Greek default and departure from the eurozone will not take a terrible toll on markets, because the situation has dragged on for so long already that many institutions have had ample time to divest themselves of some of their Greek debt.
That’s not to say that it isn’t a serious situation–in fact, says Kleintop (left), “It’s a terrible situation. Greece is in a depression economically, and likely to stay there.” He points out that “their debt is currently trading at 24 cents on the dollar–there’s a high expectation of default, or a major restructuring of debt.”
We spoke with him at length about the Greek situation, and what he sees in store for the markets.
Does that mean other countries with high levels of debt, like Italy and Spain, will follow?
Greece is in a unique situation. It’s very difficult, and Greece will ultimately leave the eurozone at some point.
The situation cannot be applied to other troubled countries in the eurozone. Too many people are saying that Italy is having trouble, Spain is having trouble, and they will follow the same path. If you take out interest payments, their budgets balance, and they don’t have anywhere near the problems Greece does. Greece’s debt is trading at 24 cents; Italy’s is 96 cents on the dollar. The market sees a very different situation in Greece.
What will a default mean for the economy of Europe?
We’ve seen a lot of flight to safety. Banks have done a lot of that. The Greek economy is only a couple of percent of the eurozone’s GDP. But so many banks chose to buy Greek debt because it paid such a high yield. Banks have done a good job unloading that debt over the last two years; they cut their exposure by two thirds. That doesn’t mean it’s not owned elsewhere–by private investors, hedge funds, pension funds–but the risk to the European economy is less from them…. The banking system can absorb a structured default of Greece.
What if it’s not structured? What happens then?