Global Macro Views

Despite the fact that its economy accounts for less than 0.3% of global GDP, Greece is once again dominating discussions about the global growth outlook. How did such a small economy come to take on such significance? First, up until now, there was a belief in the irrevocability of the euro and no one is quite sure what a Greek exit from the common currency means for the likes of Italy, Spain, or Portugal. Second, there is uncertainty about how quickly policy makers at the European Central Bank (ECB) will respond in providing liquidity to other peripheral economies should the situation with Greece head south. However, it is worth noting that private sector exposure to Greek debt has been greatly reduced in recent years. Indeed, more than 80% of Greek debt is held in official hands. Furthermore, banking and trade ties with Greece are minimal outside of Europe. Therefore, while a Greek exit from the euro is undoubtedly bad news for Greece and will likely increase volatility in global financial markets, it is unlikely to derail the global economy.         

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