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Market Reaction Muted after Greece 'No' Vote

Jul 06, 2015
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SMITH BRAIN TRUST -- U.S., European and Asian stock markets all fell in response to Greece rejecting austerity plans demanded by international creditors. But the market reaction was more muted than analysts had expected, reports the BBC. Those experts include William Longbrake, executive-in-residence at the University of Maryland’s Robert H. Smith School of Business and Center for Financial Policy. Ahead of the markets opening on Monday, he told the Associated Press: “Markets have ignored consequences for the rest of the euro monetary union up until now, but the Greek 'no' vote probably changes this, which could now result in investors worrying about what happens to other weak peripheral countries.” 

But Longbrake also said on Sunday night to “watch for how the Europeans handle the Greek bank run, which must be addressed in the next couple of days. That will be followed by whether serious creditor negotiations with Greece resume.”

“In the short run the global economy is not likely to be affected much," he said. "However, risks could grow, depending on how European creditors handle the Greek situation. If there is no deal -– such as a two-year bailout extension with some form of debt relief -- it looks increasingly like Greece will be forced out of the euro and perhaps the EU, then financial conditions would probably deteriorate sharply.”

Tighter financial conditions in Europe will be negative for the euro economy but favorable for the euro. “Consequences for the U.S. economy are probably limited unless the dollar appreciates sharply in value in coming days,” Longbrake said.

Smith professor Peter Morici, as Inquisitr reports, argued that the Greeks saying "no" was standing up to an European Union culture that values economic health over that of the people who must deal with the consequences. Those arguing that a Greek vote for “yes” would have fixed the downward economic trend are not looking at what austerity has already done to the country.

Prior to Sunday’s referendum, Longbrake said a Greek exit “would increase the centrifugal forces that are slowly tearing the European Union apart.” He said that if one member of the Union is forced out, it would undercut the rationale for the Union and increase the likelihood that other members, such as Spain and Portugal, would find it in their best interests to depart.

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The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.