However, as I write in my new weekly commentary, “Staying on Course as Greece Enters Uncharted Waters,” I don’t believe the situation in Greece poses a longer-term threat to the global economy or financial markets. Here’s why.
Greece’s direct impact on the global economy and markets is tiny. It represents just 0.26 percent of global gross domestic product (or GDP)—less than Peru or Romania. In addition, the country’s equities account for just 0.035 percent of the MSCI All World Equity Index, and most European companies have little to no sales exposure to Greece. In addition, Greece’s debt is mostly held by its official creditors (which can be easily recapitalized)—not the private sector.
Market Realist – Who owns Greece’s debt?
The graph above shows Greece’s (GREK) leading creditors. Germany (EWG) and France have the highest exposure, at 68.2 billion euros and 43.8 billion euros, respectively. The United States (SPY)(VOO) and the United Kingdom have exposure exclusively to domestic banks, at 11.3 billion euros and 10.8 billion euros, respectively.
The Eurozone (FEZ) is much better prepared to tackle the Grexit now than it was in 2012. Most countries have reduced their exposure to Greek debt. So contagion, if any, will be limited.
This second graph compares the absolute values of Greek debt held by various European countries along with the debt levels as a percentage of their GDPs. Germany, France, Italy, and Spain have the highest absolute exposure to Greek debt, in that order. However, exposure is well contained and within 5% of most of these countries’ GDPs. For example, Germany’s exposure to Greek debt is limited to slightly over 3% of Germany’s GDP.